KENTWOOD — With extremely limited inventory for growing manufacturing and industrial users in West Michigan, developers increasingly are focusing on new construction.
Among them is A.J. Veneklasen Inc. The Grand Rapids-based construction management and development firm recently broke ground on a $6.2 million, 113,600-square-foot expansion of its industrial property at 5300 Broadmoor Ave. SE in Kentwood.
As in other commercial real estate sectors, users of industrial properties increasingly are making a flight to quality spaces with modern amenities as a means of bolstering their corporate image and attracting and retaining a skilled workforce, according to A.J. Veneklasen President Chris Veneklasen.
“I think we’re seeing a bigger appreciation for quality of product,” Veneklasen said. “We targeted kind of the premium side of the market for this facility. We’re finding that companies are looking for that and they see the benefits. Certainly, some just need shelter for warehouse space; others see this as an opportunity for a better corporate image.”
The new facility is an addition to the firm’s existing 50,000-square-foot building on the same site. Three Grand Rapids-area industrial users — Logicdata North America Inc., Sunhill America LLC and a division of West Michigan Tag and Label Inc. — are slated to take space in the expanded industrial property, which still has 16,000 square feet of vacant space, Veneklasen said.
The expansion at 5300 Broadmoor joins nearly 20 other industrial construction projects totalling nearly 2 million square feet that are underway in the West Michigan area, according to a report earlier this month from the Grand Rapids office of Colliers International Inc.
The West Michigan industrial real estate market vacancy rate stands in the low to mid single digits, according to recent reports from both Colliers and NAI Wisinski of West Michigan.
That limited inventory is driving developers to more new construction even if they might not have a tenant in place at groundbreaking.
“More and more speculative product is beginning to find its way into the market with rents now being supportive of the new construction prices,” according to the NAI Wisinski report. “Many of the new speculative construction buildings are experiencing immediate interest from tenants in the market and many of them are being built with signed leases already in place for a portion of the space.”
To that end, Veneklasen said his company’s new building — which began as a speculative development and is slated for completion by early spring of next year — is fetching rents in the range of $5.50 per square foot with tenants responsible for all utilities and upkeep of their space.
According to Veneklasen, the low single-digit vacancy rates in the region are driving capacity for new construction, although users still struggle with sticker shock.
“I think the struggle is that (in this) market, our construction costs aren’t tremendously different from larger markets like Chicago or Indianapolis,” Veneklasen said, adding that those markets have historically had an easier time getting users to pay higher rents for new space. “I think the market here is struggling a little bit to adjust to the rates that are required for new construction.”