q4 2011 industrial
DESCRIPTION
2011 Q4 - Industrial Market TrendsTRANSCRIPT
RESEARCH & FORECAST REPORTWEST MICHIGAN
www.colliers.com
Availability Not Painting True Picture of Industrial MarketEXECUTIVE SUMMARYThe fourth quarter couldn’t maintain the momentum that the industrial market created over the course of the year. The quarter was the first of the year to return negative absorption; however, the outlook is still bright. As the commercial real estate market continues to adjust to a new economic reality, the industrial sector seems less phased. West Michigan continues to be an example of how staying true to one’s roots can help overcome obstacles, as manufacturing continues to stay strong in the area. Even with businesses downsizing, merging, or closing doors, the industrial market saw more than 422,000 square feet of competitive industrial space filled over the course of the year. Manufacturers are increasingly looking towards West Michigan for answers to their real estate problems, a trend that landlords and investors alike should be excited about.
Over the course of the second half of the year, the concentration of manufacturing jobs increased in all but one of the six West Michigan metro areas, with an overall growth of 5.7%. A number of companies are in the process of entering the market or expanding within it, something that we haven’t seen a whole lot of over the past couple of years. Industrial rental rates have firmed up quicker than other product types and landlords are now on stable enough footing to search for quality tenants. This growth has created a divide in the market, however. Quality industrial space is so heavily sought after, that there simply isn’t enough of it to go around. Companies are looking for spaces that fit their specific needs, and functionally obsolete buildings that would need time and money to bring to specification are receiving far less attention.
“Despite three quarters of positive absorption, the last quarter of 2011 dipped into the negative”
MARKET INDICATORS
Q4 2011 Q1 2012*
VACANCY
NET ABSORPTION
RENTAL RATE
CONSTRUCTION —
Q4 2011 | INDUSTRIAL
Absorbed
Completed
COMPLETIONS VS. ABSORPTION | QUARTERLY (in thousands of SF)
4Q 09 2Q 10 4Q 10 2Q 11 4Q 11
500
250
0
-250
-500
76th St SE
68th St SE
28th St SE28th St SE28th St SW
44th St SE44th St SW
52nd St SW
36th St SE
Knapp St NE
Knapp St NE
4 Mile Rd NE4 Mile Rd NW
E Fulton St
S Division
Ave
Eastern A
ve SE
Kalam
azoo Ave SE
Breton
Rd SE
Chicago D
r SW
Hall St SE
Leonard St NE
Cascade Rd SE
Pettis Ave NE
Leonard St NE
Clyde Park A
ve SW
Byron
Center A
ve SW
E Fulton St
Baldwin St
96
131
6
45
44
44
37
11
Gerald R. FordInternational
Airport
196
96
96
96
96
96
131
196
196
196
196
196
66
6
11
11
NE
SESW
NW
45
21
Industrial SubmarketsNorthwestNortheastDowntownSouthwestSoutheast
DTWN
NWNE
DTWNSWSE
SUBMARKET MAP
*projected
Simply put, market perception continues to trail market reality. There are a number of vacant spaces and many of them are becoming less and less competitive. The Northwest submarket of Grand Rapids saw its vacancy rate rise by 40 basis points, while the Southeast submarket lowered its vacancy by 20 basis points, a sign that the market is reacting differently based on the quality of product available.
CURRENT CONDITIONSVacancy rose in the fourth quarter to 8.8%, although it is down for the year from its 9.2% starting place. Despite seeing an increase in vacancy, overall activity picked up from last quarter. There were 31 sales in the marketplace compared to 28 a quarter ago. Leasing velocity picked up as well, growing from 42 leases last quarter to 52 in the fourth quarter. Again, despite the perception of an abundance of empty buildings, good quality space that is flexible is being transacted at an increased rate.
A useful metric for measuring the market is average time a building or space is listed before being transacted. In 2009, this number was approximately 216 days. By the end of 2010, the number had climbed to nearly 345 days; however, 2011 brought a reversal of this trend. Spaces are being transacted at a quicker rate, and thus the average time on market has since fallen back down to roughly 219 days, a nearly
37% decrease. We feel this statistic is an important one that helps reveal how the market is reacting to current conditions.
Another useful measurement is average asking sale and lease prices. Industrial sale prices have increased more than 17% since the start of the year and nearly 22% since the end of the first quarter, bringing capitalization rates down as well. Average asked lease rates have remained relatively stable through much of the year, but have clearly bottomed out and are looking to trend back upwards. It is important to remember, though, that these averages paint the market picture with a single brush stroke, despite different segments of the market and different industrial building types behaving very differently. True market knowledge is as important as ever.Creative solutions to real estate needs continue to push deals through the sludge of the economy. In the fourth quarter, we saw Lumbermen’s, Inc.’s needs filled by finalizing a deal to put them into 200,000 square feet at 8715 Byron Commerce Drive. To make this move happen, however, two existing tenants needed to be relocated. Colliers then negotiated deals to move R.E.D. Stamp, Inc. into 46,000 square feet at 3800 Patterson and R.L. Plastic Inc. into 100,000 square feet at 7377 Expressway Drive. In total, nearly 350,000 square feet of industrial space was transacted, a deal with a lot of moving parts, but one that was orchestrated using creativity and market knowledge.
4Q 09 2Q 10 4Q 10 2Q 11 4Q 11
ASKING RENTAL RATESQuarterly ($/SF/Yr. Triple Net)
RECENT TRANSACTIONS
SALES ACTIVITY
PROPERTY ADDRESS SIZE SF SALE PRICE PURCHASER SUBMARKET CITY
3403 Lousma Dr. SE 12,080 $235,000 Fisk Reeds Re, LLC Southeast Wyoming
5633 52nd St. SE 56,990 $650,000 SSBB, Inc Southeast Grand Rapids
879 Productions Pl. 24,600 $587,500 LH Partners, LLC Holland - South Holland
11007 Chicago Dr. 39,200 $289,000 Square Foot Leasing, LLC Holland - South Holland
4909 Wayne Rd. 216,390 $850,000 Behnke Logistics, LLC Battle Creek FCIP/Airport Battle Creek
13401 New Holland St. 57,000 $325,000 NH Building IOT, LLC Holland - North Holland
5670 West River Dr. NE 44,264 $900,000 Rodriguez Investments, LLC Northeast Belmont
LEASING ACTIVITY
PROPERTY ADDRESS SIZE SF LEASE TYPE TENANT SUBMARKET CITY
5079 33rd St. SE 85,595 Relocation ATEK Medical, LLC Southeast Grand Rapids
11373 E. Lakewood Blvd. 13,692 Relocation Xact Industries, Inc Holland - North Holland
101 E. Roosevelt 15,000 Renewal - Expansion Outsource One, Inc Lakeshore - Zeeland Zeeland
4140 East Paris Ave. SE 152,700 Renewal X-Pedx (International Paper) Southeast Kentwood
1525 Gezon Pkwy. SW 12,000 New Deal United Logic, Inc Southwest Wyoming
12688 New Holland St. 50,053 New Deal J.R. Automation Technologies, LLC Holland - North Holland
5801 Weller Ct. SW 9,600 New Deal Honeywell International Southwest Wyoming
R&D/Flex General Industrial
VACANCY RATEQuarterly
4Q 09 2Q 10 4Q 10 2Q 11 4Q 11
10%
9%
8%
$5
$4
$3
$2
Warehouse/Distribution
P. 2 | COLLIERS INTERNATIONAL
RESEARCH & FORECAST REPORT | Q4 2011 | INDUSTRIAL | WEST MICHIGAN
SUBMARKET BLDG TOTAL SFTOTAL
VACANT SFTOTAL
VACANCY RATEVACANCY RATE
PRIOR QTR
NET ABSORPTION
CURRENT QTRAVG.
ASKING RENT
DOWNTOWN
General 237 10,704,364 328,112 3.1% 3.1% - $2.49
Incubator 5 74,307 - 0.0% 0.0% - $-
R&D/Flex 1 95,000 - 0.0% 0.0% - $-
Warehouse/Storage 8 1,273,941 25,000 2.0% 2.0% - $2.63
TOTAL 251 12,147,612 353,112 2.9% - $2.47
NORTHEAST
General 132 5,648,814 355,621 6.3% 6.5% 9,810 $4.35
Incubator 0 - - 0.0% 0.0% - $-
R&D/Flex 6 75,511 15,509 20.5% 20.5% - $6.38
Warehouse/Storage 1 12,000 - 0.0% 0.0% - $-
TOTAL 139 5,736,325 371,130 6.5% 9,810 $4.37
NORTHWEST
General 249 11,219,878 1,120,187 10.0% 9.9% (10,700) $3.15
Incubator 6 116,772 5,500 4.7% 4.7% - $3.75
R&D/Flex 3 61,844 7,844 12.7% 12.7% - $3.80
Warehouse/Storage 26 4,562,916 1,003,570 22.0% 20.9% (50,750) $2.88
TOTAL 284 15,961,410 2,137,101 13.4% 13.0% (61,450) $3.08
SOUTHEAST
General 602 38,064,739 3,491,013 9.2% 9.4% 95,470 $2.99
Incubator 2 17,572 5,000 28.5% 28.5% - $7.50
R&D/Flex 63 2,019,721 348,304 17.2% 17.2% - $4.50
Warehouse/Storage 48 8,609,933 1,038,843 12.1% 12.1% - $3.15
TOTAL 715 48,711,965 4,883,160 10.0% 95,470 $3.08
SOUTHWEST
General 451 21,581,037 1,541,338 7.1% 6.4% (102,382) $3.50
Incubator 5 108,003 5,500 5.1% 5.1% - $2.85
R&D/Flex 27 943,023 186,157 19.7% 15.7% (38,484) $4.90
Warehouse/Storage 39 7,026,321 452,633 6.4% 6.0% (30,000) $3.18
TOTAL 522 29,658,384 2,185,628 7.4% 6.6% (170,866) $3.47
MARKET TOTAL
General 1671 87,218,832 6,836,271 7.8% 7.7% (7,802) $3.16
Incubator 18 316,654 16,000 5.1% 5.1% - $2.77
R&D/Flex 100 3,195,099 557,814 17.5% 16.3% (38,484) $4.52
Warehouse/Storage 122 21,485,111 2,520,046 11.7% 11.4% (80,750) $3.07
TOTAL 1,911 112,215,696 9,930,131 8.8% 8.7% (127,036) $3.18
BLDG TOTAL SFTOTAL
VACANT SFTOTAL
VACANCY RATEVACANCY RATE
PRIOR QTR
NET ABSORPTION
CURRENT QTRAVG.
ASKING RENT
QUARTERLY COMPARISON AND TOTALS
Q4-11 1,911 112,215,696 9,930,131 8.8% 8.7% (127,036) $3.18
Q3-11 1,912 112,297,636 9,718,325 8.7% 8.9% 190,635 $3.11
Q2-11 1,912 112,555,180 9,978,160 8.9% 9.2% 357,943 $3.10
RESEARCH & FORECAST REPORT | Q4 2011 | INDUSTRIAL | WEST MICHIGAN
COLLIERS INTERNATIONAL | P. 3
Steve Marcusse SIOR, CCIMPrincipalMOB 616 450 [email protected]
Current and planned construction has remained minimal but not non-existent. Meijer Inc. is investing $7.6 million into an existing site in Grandville to turn it into a processing, packaging, and distribution center. The plan includes adding 25-30 employees. Continental Dairy is opening a new plant in Coopersville, which will add 70 to 100 employees, while Johnson Controls is expanding their Norton Shores facility and will add around 40 jobs.
The West Michigan economy saw its unemployment rate drop to 7.1%, down more than 2.0% from a year ago. The state as a whole still trails the national average of 8.5%, however the Greater Grand Rapids area is now well below that average. Manufacturing jobs make up roughly 15.3% of the West Michigan workforce, and are expected to increase according to the employment services company, ManpowerGroup. The firm’s Employment Outlook Report states that the region should expect strong hiring progress in the area, with manufacturing leading the way. With four of the top ten employers by size in the area being manufacturing companies, the outlook for industrial growth is promising.
A LOOK AHEAD
• As manufacturing inventory continues to dwindle, look for users to consider warehouse space.
• GeneralMotorswill finish the tear-downof its site on 36th street, and re-development plans will be put into place.
• Amway will move out of their 685,000 square feet facility in Ada which sits on more than 106 acres of land. However, the company intends to stay committed to the area.
• Leaserateswilltrendupwardsasthesupply and demand equilibrium becomes a little clearer.
• Look for companies to lock in spaceswith longer term leases than recently seen.
• Some quality buildings will transfer ownership due to increased interest from investors.
• Expecttoseethestartofsomebuild-to-suit and speculation construction as quality space is less and less available.
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RESEARCH & FORECAST REPORT | Q4 2011 | INDUSTRIAL | WEST MICHIGAN