Industrial space nearly full in parts of Metro Detroit

Louis Aguilar
The Detroit News

The need for industrial space in Metro Detroit has been in overdrive for the past four years, so much so that many parts of the region are close to being nearly full.

Several industry reports say there is a 1 percent vacancy rate for specific types of industrial buildings, including manufacturing complexes, wholesale/distribution facilities and even specialty spaces such as cold storage. In Macomb County, there is a 1 percent vacancy rate for all type of industrial buildings.

Industrial buildings cover a broad range of structures, including factories for both light and heavy industry, research and development complexes, self-storage, telecom/data storage centers, campus-like business parks that include manufacturing or warehouse capabilities and “flex” buildings that can be adapted by various industries.

For many type of industrial buildings, and in all but a few spots of Metro Detroit, the vacancy rate is in the single digits, according to analysts who follow the commercial real estate market.

“We are seeing the lowest reported vacancy rates on record” for Metro Detroit, said Peter McGrath, a research analyst and broker in the Southfield office of Colliers International. “Finding a decent building in Troy or Sterling Heights is becoming exceedingly difficult.”

The overall vacancy rate for Metro Detroit industrial buildings is anywhere from 5.3 percent to 2.73 percent, according to various fourth-quarter 2016 reports from commercial real estate firms CBRE Research, Colliers International, CoStar and Newmark Grubb Knight Frank. The average rent is somewhere in the $5.20 to $4.80 per square foot range, depending on the report, compared to around $4.30 per square foot five years ago. In many categories, rent increases have been much higher.

Only Detroit/Hamtramck and certain parts of downriver have vacancy rates of 5 percent or higher. The Detroit-Hamtramck area reports the highest vacancy, including one report that says the average vacancy is at 19.2 percent.

Demand is not slowing. The last three months of 2016 was one of the most active quarters in the past few years, analysts said, with more than 1.3 million square feet of space absorbed. That’s the equivalent of about 29 acres, or about 20 football fields.

One example of that recent activity was the $3.7 million sale of a Taylor facility to a Windsor firm called Hearn Industrial Services. The company is an auto supplier, and the building at 13500 Huron is where Hearn will provide sequencing, sub-assembly and transportation of glass components to the nearby Ford Motor Co. Flat Rock Assembly Plant, according to Hearn’s website. The components are for the Ford Mustang and the new Lincoln Continental.

Ford’s Flat Rock Assembly will soon add manufacturing space. Earlier this month, the automaker said it will invest $700 million in order to build autonomous and electric vehicles along with the Mustang and Continental. The expansion will create 700 direct new jobs, according to the automaker. That expansion will almost surely result in the need for more industrial space by auto suppliers in the future, analysts said.

The Hearn facility, a 108,000-square-foot building, is an example of how the auto industry is driving the big demand for industrial space in the area. Back in 2009, U.S. auto sales nosedived to 10.4 million for the year, the lowest level in 27 years and pushing some automakers to the verge of collapse. The vacancy rate back then for area industrial space hovered around 16 to 18 percent, various reports show. The auto industry has rebounded strongly since then. Last year, Americans bought 17.55 million cars and trucks, breaking the sales record set in 2015.

Another major reason is the rise of online shopping. The trend is causing mass closures of stores for many national retailers, including Kmart and Macy’s. As a result, , many shopping malls are in financial trouble. It also means there’s been a series of new facilities being built now that will act as distribution and logistic facilities that will handle the various merchandise bought online. The latest example was the December announcement by online retail giant Amazon that it will build a new $90 million, 1 million-square-foot “fulfillment center” in Livonia, which will eventually employe 1,000.

Another example is FedEx Corp, the freight transportation company. It’s building a 300,000-square-foot distribution center in Oak Park at 24760 Greenfield, which is the site of the former Detroit Artillery Armory. FedEx is also reportedly interested in building another facility in Sterling Heights.

Not surprisingly, the high demand for industrial space is driving new construction.

By the end of this year, at least 33 additional additional facilities will be added to the market, totaling another 5.8 million square feet, said John DeGroot, research manager for Newmark Grubb Knight Frank. “In matter a four years, will have seen 60 buildings constructed. We haven’t seen that in recent history.”

The low vacancy rates show that new construction is not keeping up with demand, analysts contend. That’s due to making the financing work to build new facilities, which is still a major challenge, according to analysts.

Whether there will be more new facilities built is a big question for this year.

“Everyone is trying to figure out if the market has peaked or not,” said analyst DeGroot.