Fears Fade of NAFTA Trade Dispute
Developers in the Detroit region seem more confident, and recently launched five new projects.
DETROIT—The Detroit region has deep ties to the Canadian economy, especially its auto sector, and a few months ago the escalating trade dispute between the Trump Administration and Canada helped cause a slowdown in new industrial projects. But those fears seem to evaporate as the two sides began moving toward an agreement, according to third quarter industrial trends data just published by Newmark Knight Frank.
“During the previous quarter uncertainty with NAFTA negotiations and ongoing tariff disputes were trumping positive market conditions such as growing GDP, healthy US automotive sales, reduced corporate tax rates, low unemployment rates and higher consumer confidence,” John DeGroot, research director of NKF’s Detroit office, tells GlobeSt.com. “Many potential deals during that period were halted and new construction starts dropped off dramatically. As the new trade deal United States-Mexico-Canada Agreement began to take shape during the third quarter, developer and user confidence returned to the market as new speculative and build-to-suit construction really picked up again.”
The Metro Detroit industrial vacancy rate held steady at 4.3% during the third quarter of 2018, as users absorbed just over 482,000 square feet. Most of that was due to the completion of five build-to-suits, but developers also now have enough confidence to launch speculative projects.
Developers broke ground on five new projects totaling 1.3 million square feet during the third quarter, according to NKF. And more than 60% of that space was speculative.
Users have absorbed speculative space almost as fast as builders put up walls. Occupancy levels of the nearly five million square feet of speculative development built since 2013 is near 90%, NKF says. Meanwhile, overall active construction totaled 6.5 million square feet during the third quarter, up from 5.6 million square feet during the previous quarter.
“The success developers have seen leasing up and getting a return on speculative developments over the past five years coupled with additional certainty in the market from trade agreements and historically low vacancies will spur addition speculative developments in 2019,” adds DeGroot.