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Sunday, 22 July 2012 00:16

Auto rebound fueling interest in industrial properties

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WEST MICHIGAN — A mix of "leased" and "sold" signs continue to appear on industrial properties across West Michigan as manufacturers that survived the recession and are growing have started to seek expansion options.

 

After leading Michigan out of the recession, the manufacturing industry — and in particular the automotive industry — remains strong, but appears to be growing slower than it was a year ago.

Despite recent national and local reports indicating slower growth in the manufacturing industry, area commercial real estate brokers claim interest in the remaining supply of quality industrial space is growing more competitive.

Brian Long, director of supply management research at the Grand Valley State University Seidman College of Business, indicated slower growth in the greater Grand Rapids industrial economy in a survey released earlier this month.

The Institute for Supply Management survey, a monthly survey of business conditions that includes 45 purchasing managers in the greater Grand Rapids area and 25 in Kalamazoo, showed new orders remained positive at +9 but the index was lower than last month's +20. The production index remained virtually unchanged at +6, up from +5. The employment index rose to +25, up from +12 because of seasonal hiring. The survey's respondents are from the region's major industrial manufacturers, distributors and industrial service organizations.

"Overall, our current statistics are still positive, but less robust than what we would like to see," Long said in a statement. "Even though the local economy is still growing, the future is starting to look far less certain than it did a few months ago."

Long said the local numbers would now be negative if it were not for the automotive sector.

"Strong auto sales are still keeping the assembly lines humming and our local automotive parts producers at high levels of output," he stated. "So far, the production schedules for most of the North American firms are positive."

Local brokers affirmed Long's findings that auto-related activity served as the catalyst for much of the activity they are seeing in the region.

While some deals are directly tied to the automotive supply chain, a portion of the companies represent supply services ancillary to it, said Stu Kingma, an industrial broker for NAI Wisinski.

"There is no question the need they have is being driven by the automotive sector," he said. "One of the companies we've been working with is based in Detroit (and) leasing here. They've established a beachhead and are now looking to purchase a building as a result of that."

Kingma said while data might suggest a slight manufacturing slowdown, he remains generally optimistic as leasing activity is still up. He said much of the growth at West Michigan manufacturers has been internal as companies try to find suitable spaces to grow.

As an example, Kingma pointed to auto supplier Port City Group, which this spring purchased a nearly 200,000-square-foot manufacturing facility on almost 17 acres in Muskegon. Just around the corner from the facility, ADAC Automotive is investing $20 million in a building addition for a new paint line, as MiBiz previously reported.

Some deals have been in the works for long periods of time due to economic uncertainty. Kingma said in many cases he continues to court companies by educating them and updating them on the availabilities in the market. It's not uncommon for a deal to work out for six to eight months, he said.

"The perception of companies is there is a ton of inventory, and the reality is there isn't," he said.

For companies that need space or want to move, the lack of inventory has shortened company's decision-making time dramatically as good properties get scooped up quickly.

"Companies need to be willing to react quickly," said Drew Miller, managing director for CB Richard Ellis in Grand Rapids. "I think there is still an element of surprise for companies when evaluating what is available in the market."

Miller described clients as having cautious confidence. While activity continues to trend upward, it is slower than what was expected six months ago as uncertainty circulates around the marketplace, he said.

Further, building amenities such as high ceilings, high-voltage power, compressed air and access to major transportation routes are increasingly hard to come by, sources said. For companies this means spending more money to redevelop the building on top of the purchase price.

Pamela Collins, a broker with Callander Commercial, and Duke Suwyn, president and CEO in West Michigan at Colliers International, share similar views that the market can expect to start seeing a few build-to-suit projects in the coming months. Suwyn said he is involved in one build-to-suit project right now. Collins isn't currently working with any build-to-suit projects, but she said such projects are definitely something she will be stepping into again.

"It's still a ways out, but we can probably expect to see more build-to-suit projects in the next eight to 12 months," Suwyn said. "However, it's likely that there won't be any spec building for some time."

Both Suwyn and Collins said the market still isn't to the point where developers can comfortably enter a speculative build with reasonable expectations to recruit a tenant.

In Kent County, the vacancy rate for industrial properties is at about 15.5 percent, similar to Washtenaw County, but better than Oakland County, both of which are comparable and competitive in-state markets, said Therese Thill, VP of Business Development for The Right Place Inc.

Thill said the lack of inventory is a growing problem for The Right Place and the economic developer's ability to attract business to the area.

"It's a bit of a concern for us. We would like to see a new supply of move-in ready buildings soon," she said. "Unfortunately, we can't expect much as inventory will fall lower before we see any new buildings."

Thill said even build-to-suit projects aren't meeting up with companies' timelines and their immediate needs for space. With construction costs still a barrier for many companies to make the investment, more manufacturers are likely to continue to try to work with what they have and hammer out every bit of efficiency in their plants that they can find, she said.

To help ease the growing pains and frustrations of some companies, The Right Place refers companies to the west regional office of the Michigan Manufacturing Technology Center, which can help companies take some of the cash that would have been eaten up in moving and use it to help find solutions ranging from inventory management to plant floor layout.

Thill said MMTC has the tools to help keep companies in their current locations by increasing productivity and efficiency.

One prominent space The Right Place helps to market is Site36 in Wyoming, which is being touted as a redevelopment opportunity for one or two large-scale advanced manufacturing firms.

Thill said the group is planning to meet internally to discuss the next level of appropriate marketing for the former General Motors stamping facility. Because The Right Place received one of the final Next Michigan designations, the site could make use of a Renaissance Zone incentive to help lure one or two major tenants.

"There are not many sites like this around, so we're hoping someone will bite fairly quickly," she said.

Read 1383 times Last modified on Friday, 25 January 2013 10:32

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