Driven by the auto industry turnaround, Southeast Michigan’s long-stagnant industrial real estate market has come roaring back.
“The industrial market is as hot as it’s been in the last five years,” said Bruce Brickman, a partner with Southfield-based General Development Co. “We saw, last year, a turning of the tide, with large amounts (of development occurring), versus a trickle.”
The region’s industrial market had a vacancy rate of 9.8 percent at 2013’s end – the lowest in more than a decade.
During the recent “Great Recession,” automakers and suppliers scaled down facilities to support annual sales of about 9 million vehicles. With sales now at 16 million, companies have outgrown their downsized spaces.
“Right now, they have too much work and not enough space to do it in,” Brickman said, adding that maintaining the status quo means losing contracts. “They’re realizing they’re going to have to do something.”
Companies have grabbed up many of the most desirable, large locations, Brickman said. Firms in need of spaces that are 50,000 square feet or larger will have to build.
“Industrial users are having a hard time finding what they need, and there is strong competition for the best buildings in the market ,” said Gary Goodman, managing director of brokerage services for Farmington Hills-based Friedman Integrated Real Estate Solutions.
With the glut of industrial space gone, clients are seeking out Friedman and other brokers, who use creativity and experience to find the best available locations.
“They should look to real estate professionals as advisors,” Goodman said.
One issue facing brokers and their clients is that yesterday’s buildings don’t always meet today’s needs. Following the lead of Google and Apple, even today’s industrial users are looking for more modern, collaborative facilities to meet their needs.
“Young people today will not go to work in 25-year-old buildings with low ceilings and no glass,” said Ryan Dembs, president of Amson Dembs Development in Novi. “They want a cafeteria. They want a fitness room.”
Traditional industrial spaces – a small office with a large shop area – aren’t always functional, either, Dembs said. Newer spaces are typically half office and half laboratory space.
“The automobile industry isn’t as much about brakes and motors,” Dembs said. “It’s about technology.”
“The automotive market is focusing resources on self-driving vehicles, touch-screen interfaces and other ‘infotainment’ systems”, Goodman said. “It’s Silicon Valley stuff, here in metro-Detroit”.
Dembs is meeting the need by putting up flexible shells of at least 50,000 square feet. Flexible and modern construction methods allow him to tailor spaces to clients’ very different needs.
Because growing demand and shrinking inventory has pushed rates upward, new construction is at least as affordable as buying existing space, Dembs said.
“Before, you couldn’t afford to put up new buildings,” Goodman said. “Now, we’re starting to see new build-to-suit, and even spec buildings in the market”.
A construction cool down in developing nations such as China – which previously gobbled up available materials such as copper and steel – has kept costs from exploding, Brickman said.
Traditional industrial space available for $4.50 a square foot four years ago now goes for $5.75 to $6.00 a square foot, he said. In that time, the rates for R&D/office space have risen from $7.50 to $8.00 a square foot to $10.00 a square foot.
The Novi area, which has more of an international presence, has been Dembs’ hottest market, he said.
Brickman sees U.S. companies along the I-75 corridor leading the market upturn.
The turnaround isn’t likely to bring back development boom times of the early 2000s anytime soon, Brickman cautioned.
“You’re not going to see people going out and specing buidings left and right,” he said. “I think you’re going to see good, steady, stable growth.”
