WEST MICHIGAN — Growing manufacturing companies hoping to expand in West Michigan have their work cut out for them in identifying new space.
That’s because the inventory of quality industrial real estate is at an all-time low and prices for square footage are climbing as rebounding manufacturers have gobbled up available real estate, according to brokers across the region.
Companies just starting to look for first-rate manufacturing space in West Michigan are oftentimes misinformed about what’s available and find themselves underwhelmed by their options, sources told MiBiz.
“Some clients are shocked when they think there might be five to 10 options out there, but really there are only one or two that could work — and most of them need some kind of modification,” said Matt Abraham, a Grand Rapids-based industrial broker with Colliers International. “The supply is down to a point where prices are rising to levels that it makes sense to look at new construction.”
With the cost of new construction still outweighing prices for existing buildings, companies can still expect to spend more to outfit a space as needed.
“It’s still going to be more expensive to build new, but the gap is closing,” Abraham said.
Other brokers agree prices are recovering and the market is getting back to near pre-recession levels.
However, even with a solid list of sales and leases under his belt for the year, Kurt Kunst, an industrial broker with NAI Wisinski, remains conservative on his market outlook.
“I’ve seen a lot of good, solid deals and others on the horizon, but I’m a little less optimistic today than I would have been six months ago,” he said. “I think after the election, things did cool off a little bit.”
That cooling off is reflected in the National Association of Manufacturers/IndsutryWeek third quarter survey that found only 69 percent of manufacturers had a positive outlook, down from 89 percent in the first quarter and 83 percent in the second quarter.
Locally, in the Institute for Supply Management of Greater Grand Rapids report for October, the most recent data available as of press time, the index for new orders edged upward into positive territory after being negative in the previous month. However, production remained negative, although improved slightly from September.
While manufacturing optimism has fallen throughout the year, the successful companies are still looking for new real estate, and Kunst acknowledged the quality of the available inventory and buyers’ expectations are definitely not aligned with the market realities.
“When you really boil it down, there is not a lot of good inventory left,” he said.
He said developers willing to take on some risk might do well to consider some build-to-suit projects given the lack of existing viable options.
While the available industrial inventory consists of mostly multi-tenant leased spaces, Kunst said larger manufacturers including Lacks Enterprises and Chep Pallets are two examples of companies in the middle of the build-to-suit process.
While every user is different and the costs to outfit a space aren’t going to be the same, some companies are resolved to remain lean in their current space by either adding another shift or reorganizing their processes, Abraham said.
The increased industrial activity is good news for the construction industry, which has been busy with jobs to prepare old buildings for new uses, additions and select new construction projects.
“We’re seeing more additions, renovations and capital improvements overall with our old and new clients,” said Mike Novakoski, president of Holland-based construction firm Elzinga & Volkers Inc. “It’s encouraging because we saw a lot of that work drop off not long ago.”
Novakoski said one manufacturing-based client had looked at buying an existing building but determined that the remaining industrial inventory needed too much work for its needs and decided instead to reinvest in its current space.
That’s a story brokers have seen play out first hand across West Michigan. For example, Colliers worked with automotive tooling and stamping manufacturer ArtiFlex to find a new space for Automatrics, an automation systems designer and manufacturer it acquired in April. Brokers said the six-month-long search yielded less-than-optimal results. In the end, the company choose to keep Automatrics in its current space, although ArtiFlex recently purchased additional space at 4400 Donker Court in Kentwood.
“Some clients have decided to wait and see if new products come on the market,” said Ben Sietsema, an industrial broker with Colliers. “(The market) is forcing us to be more creative in the spaces we’re looking at when it comes to energy, water and sewer (needs) and working with municipalities to outfit these existing buildings.”
In this recovery, larger or strong-performing companies that gained market share coming out of the recession are the ones seeing increased business, Sietsema said. But the smaller industrial players must make do with what they have as financing is slow to loosen, he said.
The smaller companies cannot find the financing they need to move or expand just yet, Seitsema added.
“Activity seems to be starting from the top and trickling down,” Colliers’ Abraham said. “Companies that survived the recession have had a huge market to take advantage of over the last couple of years.”