colliers industrial report
TRANSCRIPT
Vacancy Rate Below 6.00% - But What’s Next?
Research & Forecast Report
WEST MICHIGAN | INDUSTRIALQ3 2015
Executive SummaryAs occupancy levels soar to new heights, the question remains: Where does our market go from here? Creative options have all but been exhausted and those opportunities that eager-to-expand businesses were able to find are simply not there now. A robust industrial market fueled by diverse manufacturers and an ideal economy have pushed the market forward yet again in the third quarter, with 110,038 square feet of absorption. Nevertheless, without new inventory, the sustainability of this growth is going to be a challenge. We are already seeing a slow-down heading through the rest of the year and into 2016.
For the past few quarters, we have predicted new construction to be key in solving the issue of limited space. This has occurred in some instances. However, it has been primarily build-to-suit projects as opposed to speculative, due to cost and risk. Companies have opted for purchasing existing buildings at market price, with the possibility of modifying to fit their needs, as opposed to the ground-up replacement cost.
Skilled workforce availability has been a concern, yet we saw a nice uptick in manufacturing employment this quarter. Goods-producing employment improved by 1.4% in West Michigan, according to the Upjohn Institute, and goods-producing employment gains are often driven by
manufacturing employment growth. General manufacturing employment grew by 1.0%.
The Grand Rapids-Wyoming MSA unemployment rate decreased from 4.2% to 3.4% over the last three months, continuing an overall downward trend that we have seen since mid-2009. The state as a whole stands at 5.0%, and the country is at 5.1%, according to the Bureau of Labor Statistics.
Jeff Hainer Senior Research Analyst | West Michigan
Market IndicatorsRelative to prior period Q3 2015 Q4 2015*
VACANCY
NET ABSORPTION
CONSTRUCTION
RENTAL RATE Note: Construction is the change in Under Construction. *Projected
Production Index
Source: Board of Governors of the Federal Reserve System (US)
*Continued on last page
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Jan-76 Sep-81 May-87 Jan-93 Sep-98 May-04 Jan-10Source: Board of Governors of the Federal Reserve System (US)/US. Bureau of Economic Analysis/FRED
2 West Michigan Research & Forecast Report | Q3 2015 | Industrial | Colliers International
Market Activity
Overall market activity remained steady in the third quarter amid a general lack of quality options – something that has been stifling transactions for some time now. Sales activity remained unchanged from a quarter ago, although lease activity dropped slightly with a 14.6% decrease in completed deals.
According to the Center for Automotive Research, the need for tool-and-die manufacturers is high. Twenty-five year old German entrepreneur Phil Muhr and his father decided to take advantage of this demand, and earlier this year started MBL Tool & Die, Inc. They recently signed a 14,400-square-foot lease at 3650 Broadmoor Avenue SE. The company hopes to eventually expand its presence within the region as well.
Eagle Film Extruders completed a 65,000-square-foot lease at 1100 Hynes Avenue SW, while Keefe Group leased 44,250 square feet at 3232 Kraft Avenue SE.
A notable sale transaction this quarter was the disposition of South Hudsonville Self Storage at 4254-4282 Central Parkway on the city’s southwest side. The 310-unit complex has been at or near full occupancy for years, and sold with a 6.9% cap rate. The 10-building facility totaled 83,570 square feet, of which 5,000 is office-use.
One major speculative announcement within the quarter, which will be called Area 52, will sit on a 50-acre site on Kraft Avenue SE and 52nd Street SE. Area 52 hopes to be home to nearly 700,000 square feet of new industrial space, and will feature an aviation theme – due to its proximity to the Gerald R. Ford International Airport. As demand for large blocks of space remains high, the development group is confident it can fill the space. While many businesses looking to build have not done so because of construction costs, economies of scale make the Area 52 project feasible because of its magnitude.
As purchase prices continue to creep up, the gap between purchasing existing inventory and new construction is getting smaller.*
0% 2% 4% 6% 8% 10% 12% 14%
Vacancy Rate by Subtype
Completions vs. Absorptions
Occupancy Rate
Source: Research Department, Colliers International | West Michigan
LIGHT AUTO SALESINDUSTRIAL PRODUCTION
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95
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3Q11 1Q12 3Q12 1Q13 3Q13 1Q14 3Q14 1Q15 3Q15
95%
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3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15
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GENERAL INDUSTRIAL
FLEX
WAREHOUSE/STORAGE
MANUFACTURING
TOTAL
Completions Absorptions
3 West Michigan Research & Forecast Report | Q3 2015 | Industrial | Colliers International3
Industrial Market StatisticsSUBMARKET EXISTING INVENTORY
NUMBER OF BUILDINGSEXISTING INVENTORY
(SF)OCCUPIED
SPACE (SF) VACANCY RATE UNDER CONSTRUCTION (SF)
NET ABSORPTIONQ3 2015 (SF)
Downtown 273 14,730,928 14,210,791 3.5% - 60,000
Northeast 111 5,141,009 5,024,879 2.3% - 9,605
Northwest 261 16,009,153 14,767,761 7.8% 60,000 3,870
Southeast 660 47,867,657 44,796,357 6.4% 150,000 18,545
Southwest 482 26,399,627 24,778,694 6.1% 106,000 24,018
Outside Metro Area 91 4,085,701 3,810,030 6.7% 30,000 -6,000
TOTALS 1,878 114,234,075 107,388,512 6.0% 346,000 110,038
PROPERTY SUBTYPE EXISTING INVENTORY NUMBER OF BUILDINGS
EXISTING INVENTORY (SF) VACANCY (SF) VACANCY RATE UNDER CONSTRUCTION
(SF)NET ABSORPTION
Q2 2015 (SF)
Flex Space 103 3,264,487 382,932 11.7% - 30,965
Food/Freezer 20 3,108,618 - - - -
General 1,269 38,917,577 2,581,934 6.6% 156,000 -2,177
Manufacturing 334 45,319,011 2,280,289 5.0% 90,000 -
Mini Warehousing 6 172,250 - - - -
Truck Terminal/Cross Dock 17 768,814 56,400 7.3% - -
Warehouse/Storage 129 22,683,318 1,544,008 6.8% 100,000 81,250
TOTALS 1,878 114,234,075 6,845,563 6.0% 346,000 110,038
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Sales Activity Property Name Size (SF) Price Submarket
4600 Clyde Park Avenue SW 56,440 $2,000,000 Southwest
4254-4282 Central Parkway 83,570 $3,750,000 Southwest
1336 Scribner Avenue NW 5,080 $515,000 Northwest
6726 Roger Drive 22,270 $950,000 Southwest
11560 E. Lakewood Boulevard 22,590 $695,000 Holland
Leasing Activity Property Name Size (SF) Tenant Submarket
2960 S. Wilson Court 10,000 Empire Wire & Supply Northwest
5801 Weller Court SW 24,000 Haldex Brake Products Southwest
1642 Broadway Avenue NW 8,320 ThinkGod Northwest
1100 Hynes Avenue SW 65,000 Eagle Film Extruders Southwest
3232 Kraft Avenue SE 44,250 Keefe Group Southeast
4600 Clyde Park Avenue SW
1642 Broadway Avenue NW
Because much of the space left on the market is less desirable than in the recent past, we saw rental rates tick down slightly this quarter. Average asking warehouse rates dropped three cents per square foot to $2.85, and general industrial dropped 73 cents per square foot to $3.98. We expect this trend to reverse in the future, as new construction drives rates back up.
A Look Forward
The Commodity Trends 2016 Outlook Conference, hosted by The Right Place, is forecasting a bearish commodities market through the next 12 months. Grand Valley State University economist Paul Isley echoes that sentiment, attributing it largely to a slowdown in China and more competition domestically. For West Michigan manufacturers, this will mean a price reduction for produced commodity goods.
Cost of new construction is still keeping shovels out of the ground, although the lack of supply will continue to force the issue. Third-party logistics provider, Kenco, is breaking ground on a new 230,000-square-foot warehouse in Zeeland in the upcoming quarter. The warehouse will be used to distribute the Mead Johnson Nutrition line, and will have 28 loading docks and 150 truck trailer parking spots. Pioneer Construction is the construction manager on the project. Delivery is expected next spring.
Those companies needing to expand but still not confident enough to purchase and build a new site will consider expanding their existing facilities. A recent example of a company expanding is SoundOff Signal, which broke ground on a roughly 40,000-square-feet expansion to its Hudsonville building. Pioneer Construction is the contractor.
WEST MICHIGAN INDUSTRIAL TEAMFOR MORE INFORMATIONJeff HainerSenior Research AnalystDIR +1 616 988 [email protected]
Matt Abraham CCIMPrincipalDIR 616 988 [email protected]
Ben CornellSales AssociateDIR 616 242 [email protected]
Jason DewittAssociate | HollandDIR 616 355 [email protected]
John Kuiper SIOR, CCIMPresident & Designated BrokerDIR 616 988 [email protected]
Cheryl LindgrenExecutive AssistantDIR 616 988 [email protected]
Steve Marcusse SIOR, CCIMPrincipalDIR 616 988 [email protected]
Paula NicholsExecutive AssistantDIR 616 988 [email protected]
Erin NugentAssociate & Executive AssistantDIR 616 242 [email protected]
Tom Postma SIORPrincipal | HollandDIR 616 355 [email protected]
Duke Suwyn SIOR, CCIMChairman & CEODIR 616 988 [email protected]
Karen VandenbossAssociate | KalamazooDIR 269 491 [email protected]
Trent WieringaSales AssociateDIR 616 988 [email protected]
4 North American Research & Forecast Report | Q4 2014 | Office Market Outlook | Colliers International
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