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Sunday, 03 August 2014 22:00

Space shortages shift conversation to market needs

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Business Technology and Research Park. Business Technology and Research Park. COURTESY PHOTO

In commercial real estate as in workforce development, companies in Southwest Michigan have had to manage wild swings in availability over the last five years.

While vacant spaces flooded the market as companies right-sized their operations in reaction to the economic downturn, unoccupied modern manufacturing space today is about as uncommon as an out-of-work engineer in the automotive supply chain.

“For us, right now, real estate is like talent: It’s a shortage,” said Ron Kitchens, CEO of Southwest Michigan First, a Kalamazoo-based economic development agency. “We are functionally out of traditional, high-quality manufacturing space as a region.”

For Kitchens, the contrast of the last few years is striking. In 2008 and 2009, commercial real estate activity had all but ceased entirely in the region, but any industrial space along the I-94 corridor between Kalamazoo and Battle Creek that comes on the market today garners multiple bids, he said.

The area has reached the point where Kitchens is starting to hear talk of developers considering speculative industrial building projects. To smooth out the process, Southwest Michigan First has compiled a group of stakeholders mostly made up of manufacturers and developers to look to identify what the exact needs of the industrial market are and what the market can bear.

“I don’t know if we’ll wind up building speculative buildings,” Kitchens said. “But it is clear we have to change the speed of the market. If we are not going to have buildings, we are going to need to have sites that are graded and ready to go … so that the companies can very rapidly break ground on those sites. That, I think, is going to be critical.”

Despite the diminishing availability of manufacturing space, Kitchens said deals are still getting done. He pointed to the deal finalized in June for WKW Roof Rail Systems LLC to move into a 191,000-square-foot space in Battle Creek’s Fort Custer Industrial Park as one key example. The German subsidiary provides aluminum parts to the automotive sector and purchased a vacant facility built in 2001 by Toyota Tsusho.

Kitchens called the facility “the last great building” in the region as far as manufacturing space is concerned.

Vacancy rates in Fort Custer have fallen from 4.6 percent to 3.6 percent over the last year.

Despite the positive momentum in several segments, the Southwest Michigan real estate market is not without its own peculiarities, sources said.

“It has been an odd winter, spring and summer,” said Rick DeKam, president of Midwest Realty Group in Portage. “(Work) slowed down more than we thought it would, and even though we are busy right now, it’s not where we thought it would be.”

Specifically, DeKam highlighted the region’s busy retail sector. A project currently under construction at the corner of Stadium Drive and Drake Road that will have a Costco store as an anchor has the potential for significant follow-on investment, he said. American Village Builders LLC is developing the project.

DeKam said the presence of Costco should bring numerous other possibilities to the region. The retailer is known to be one of the most “finicky” of all the big-box retailers and for its significant due diligence when selecting locations, he said.

“For the longest time, we didn’t think they would come,” DeKam said. “(Costco) opening a store in Kalamazoo is a positive thing. They claim they pull people from 25 miles away. That pulls people in that may otherwise not come to Kalamazoo.”

Just to the east, Battle Creek is also eyeing opportunities to ramp up retail activities, specifically in the downtown area. In July, economic development group Battle Creek Unlimited launched its Retail Acceleration Program through the Battle Creek Downtown Partnership. The initiative seeks to increase the potential for retail development in the city’s central business district by offering rental support in exchange for the business owner accepting mentoring and coaching opportunities.

Both Kitchens and DeKam noted office space has been particularly soft across the region. DeKam said his firm has looked closely at its office holdings and found that occupancy has been decreasing for the last 12 months, which caught him by surprise. He said this was the opposite of what most developers and landlords are seeing with retail holdings.

“It is an indication of the changing demands for end users,” Kitchens said. “People want to work in collaborative spaces … so that requires less square footage per employee. You don’t have to be in an office anymore, so it simply takes less room.” 

Sidebar: Notable real estate projects

Kalamazoo

  • Homer Stryker M.D. School of Medicine
    What: The 350,000-square-foot, $68 million building rehabilitation is part of Western Michigan University’s new W.E. Upjohn campus in downtown Kalamazoo. The project was designed by Kalamazoo-based Diekema Hamann Architecture & Engineering LLC. Why it matters: The university’s plan to build its medical school downtown is expected to bring a large influx of people to the core of the city. The move is also expected to bolster the university’s research capabilities, which have lagged somewhat because of funding cuts in recent years, sources said. While the School of Medicine opens this fall, the university still needs to build out its research capabilities, which is expected to spur the creation of innovations in life sciences.

 

  • Business Technology and Research (BTR) Park
    What:
    When mobile phone power cell manufacturer mophie Inc. breaks ground on a new distribution center later this year in Kalamazoo, the Western Michigan University BTR Park will be functionally out of space. With the addition of mophie and Newell Rubbermaid Inc.’s Design Center, the BTR Park — a part of WMU’s 265-acre Parkview Campus — will be completely filled, said Bob Miller, WMU’s associate vice president of community outreach. While the park still gets some turnover as companies expand, the university will need to find other options for companies looking to build new facilities.
    Why it matters: WMU expected that it would take up to two decades to fill the BTR Park, but instead, the process took barely 12 years. The park has housed a number of startups in a variety of sectors from technology to pharmaceuticals to consumer goods design. Future development is planned for an adjacent 55-acre Colony Farm Orchard property, as MiBiz has previously reported.

Battle Creek

  • Borgess Health Park
    What: A new $26.9 million outpatient facility by Kalamazoo-based Borgess Health opened in June. The two-story, 65,000-square-foot building is located near the intersection of Capital Avenue and Beckley Road. NBBJ, a Columbus, Ohio-based architecture firm, handled design and Portage-based AVB Construction built the project.
    Why it matters: The facility brings about 90 new health care jobs to the region, said BCU CEO Karl Dehn. It’s also expected to serve as a catalyst for ancillary development in the nearby neighborhoods.
  • 32 West Michigan Avenue
    What: The downtown Battle Creek building at 32 West Michigan Avenue was recently acquired by Tara Hampton of Schoolcraft-based Hampton LLC. Hampton, the owner of two Fitness Loft gyms in Battle Creek, plans to invest $1.3 million into the 12,254-square-foot, two-story building.
    Why it matters: By the end of this year when the renovation is complete, the building will become the new home of the Battle Creek Community Foundation. The nonprofit will occupy 8,900 square feet with the remainder being split into four or five retail and office spaces, available in a range of sizes.
Read 41531 times Last modified on Sunday, 03 August 2014 15:32
Nick Manes

Staff writer

nmanes@mibiz.com

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