DETROIT—The industrial market throughout this metro area continues to expand. Driven by the growth of facilities dedicated to e-commerce, along with a strong auto sector, in the third quarter the vacancy rate fell to 5.3%, a drop of 20 bps, and 1.4 million square feet was absorbed, according to a new report from Newmark Knight Frank. This marks the 28th consecutive quarter of expansion.
Furthermore, rental rates have kept rising, and developers have pushed new construction to an unprecedented level. Since the third quarter of 2016, the average effective lease rate paid by tenants has risen 8.25%, while construction levels have risen 95%. And one firm plays a key role.
“Amazon accounts for about 45% of the new construction in Metro Detroit,” John DeGroot, research director of NKF's Detroit office, tells GlobeSt.com. “From 2014 to 2017 just over 6.6 million square feet of new industrial construction had been delivered,” but as of the third quarter, active construction reached 8.2 million square feet.
Amazon, Inc. has two facilities currently under construction, for a total of 1.8 million square feet, and plans to begin in 2018 another distribution center of one million square feet on the former Visteon site in Shelby Township.
E-commerce operations have been expanding throughout the US, so that level of activity here may not be a surprise. But the auto industry's contribution to this historic level of expansion has been surprising. The auto market seems to have peaked, DeGroot says, and that led many observers to expect demand for industrial facilities would slow.
“That has not been the case,” he says. In fact, “it seems to be getting even stronger going into 2018.” Grupo Antolin, for example, a Tier 1 parts supplier with facilities across the US, broke ground in the third quarter on a 250,000 square foot facility in Shelby Township. UTEC is constructing a 115,000 square foot building on Van Dyke Ave. in Sterling Heights, while Mor-Tech Design just started a 43,000 square foot building on Mound Rd. also in Sterling Heights.
DeGroot attributes this continuing growth to the need for new, ultramodern facilities, a need that grew during the recession, years when the auto companies had curtailed new construction.
And he expects asking rates to continue climbing in 2018 even as millions of square feet comes online. “As soon as space becomes available, it gets leased up or sold, with very little exposure time.”
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Brian J. Rogal
Brian J. Rogal is a Chicago-based freelance writer with years of experience as an investigative reporter and editor, most notably at The Chicago Reporter, where he concentrated on housing issues. He also has written extensively on alternative energy and the payments card industry for national trade publications.
