Newmark & Company Real Estate Inc.

07/13/2017 | Press release | Distributed by Public on 07/17/2017 08:10

Speculative Developments Adding Space to Metro Detroit Industrial Market

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Speculative Developments Adding Space to Metro Detroit Industrial Market

Detroit, MI (07/13/2017)

11:00 AM

Newmark Knight Frank (NKF) released its second quarter 2017 office trends data for the Detroit region this week. According to the reports, Metro Detroit's office market hit its 19th consecutive quarter of positive absorption.

Metro Detroit
Metro Detroit's industrial market vacancy rate held steady at 5.3% during the second quarter of 2017. The limited supply has dramatically slowed the level of absorption in existing vacant space. In fact, roughly 90% of absorption during the quarter came from companies moving into newly constructed space. In total, nine industrial construction projects came to completion during the quarter for a total of 1.1 million square feet. The vast majority of existing vacant spaces currently on the market are second- or third-generation facilities that in most cases are not functionally suitable for modern space requirements. This is leading to even more new construction in the form of both build-to-suits and speculative developments. A major indicator of the strength of the industrial market is the performance of speculative developments, as these potentially risky developments begin with no lease commitments.

'The market is responding well to speculative construction as these developments are seeing very little dark time upon completion,' said John DeGroot, research director of NKF's Detroit office. 'The persistent scarcity of available space amid strong demand is the impetus driving more speculative developments that will eventually add more than two million square feet to the market over the next few quarters.'

Two major test cases for this phenomenon are the Tri-County Commerce Center in Oakland County and the Cherry Creek Corporate Park in Macomb County, which experienced occupancies of 60.0% to 100% upon completion. Now developers across the metro area are bringing more projects to the market. While virtually nonexistent a few years ago, there are now 13 active speculative developments currently under construction, which represents 40.0% of the overall number of projects currently under construction.

'Lease rates are on the rise while tenants have very few options in the market,' said Fred Liesveld, managing director of NKF's Detroit office. 'Market conditions are not only spurring new speculative developments, but they also continue to drive cap rates down on existing facilities.'

Macomb County
Macomb County's industrial vacancy rate fell another 10 basis points to 2.1% during the second quarter, as just over 362,000 square feet was absorbed. Nearly 80% of the county's overall net absorption came from new construction occupancies. Developers continue to capitalize on the county's strong demand amid limited supply of existing space, so much so that most speculative developments are seeing virtually no dark time. D'Agostini Land Company recently completed three speculative developments in the Cherry Creek Corporate Park in Shelby Township that have already been leased up; Epic Equipment and Engineering leased 122,000 square feet, JVIS-USA leased 88,000 square feet and Cosworth, LLC took occupancy of 56,000 square feet. Two other speculative developments have been completed that have added much-needed vacant space to the market. Development firm Quadrate Companies finished a 38,000-square-foot facility on Quadrate Drive, and Niko's Imports & Exports LLC finished a 13,000-square-foot facility. Still in the works are four other speculative developments that will add just over 150,000 square feet to the market by the end of the year. On the build-to-suit front, five projects totaling under one million square feet are underway across Macomb County for Mitchell Plastics, Flex-N-Gate, Lipari Foods, CIE Automotive and Mor-Tech Design.

Southeast Oakland
Strong demand in the Southeastern Oakland County industrial market continues to push positive absorption and new construction projects. INCOE Corporation is the latest company to announce plans to construct a new, 135,000-square-foot headquarters building in the Oakland Technology Park in Auburn Hills. Meanwhile, during the second quarter, Jenoptik Automotive completed construction of its 100,000-square-foot facility on Hamlin Road in Auburn Hills, while Renishaw completed construction of a 20,000-square-foot building in the Oakland Technology Park. One of the first major projects to test the speculative construction market in Metro Detroit, the 575,000-square-foot Tri-County Commerce Center in Hazel Park, was also completed during the second quarter, and the project is largely paying off. Two major companies leased space in the facility: Amazon leased 137,000 square feet, and Bridgewater Interiors LLC leased 82,000 square feet. The completed building also leaves roughly 385,000 square feet of much-needed vacant space to the Southeastern Oakland County industrial market, as demand for space is showing little sign of letting up. A few notable deals for existing space include Mahindra's 151,000-square-foot lease at 275 Rex Boulevard in Auburn Hills, AM General's 168,000-square-foot lease at 1399 Pacific Drive and Lightning Technologies' 83,000-square-foot lease in the Orion Commerce Center. In Oak Park, Wurth Baer Supply Company took 55,000 square feet in the renovated 13390 Cloverdale building. Meanwhile, Fischer America Inc.'s leased 35,000 square feet on Spartan Street in Madison Heights.

Southwest Oakland
The Southwest Oakland County industrial market vacancy rate fell 30 basis points to 5.1% during the second quarter, as just over 284,000 square feet was absorbed. Two build-to-suit construction projects came to completion during the quarter: ATI Technologies' 107,000-square-foot facility on Meadowbrook Road and BLM Group USA Corporation's 75,000-square-foot facility on Cartier Drive in Novi. Strong demand in the submarket is pushing even more construction projects. Development firm Etkin Equities is breaking ground on two major build-to-suit projects, a 150,000-square-foot facility for A123 Systems and a 100,000-square-foot facility for Hino Motors on Twelve Mile Road in Novi. Meanwhile, Northern Equities Group Inc. is building a 76,000-square-foot facility for Daifuku North American Holding Co. on Cabot Drive in Novi, and Cunningham-Limp Company is building a 40,000-square-foot building on Lyon Industrial Drive in New Hudson. In addition, four major speculative developments are under construction that will bring an additional 321,000 square feet of available space to the submarket by the end of 2017.

Western Wayne
Western Wayne County's industrial vacancy rate climbed 30 basis points to 3.6% during the second quarter, as the submarket posted 107,000 square feet of negative absorption. The bulk of negative absorption resulted from 145,000 square feet of R&D/Flex space vacated from at 45000 Helm Street in Plymouth. Construction activity for bulk warehouse/distribution space remains active in Western Wayne County. As of the second quarter, vacancy for warehouse/distribution stood at just 1.3%. Currently, just over 1.9 million square feet is being built to add much-needed space to the submarket. The largest is Amazon's 1.0 million-square-foot build-to-suit distribution center at 13000 Eckles Road in Livonia that is being developed by Oliver/Hatcher Construction. Elsewhere, Ashley Capital, LLC is speculatively building the Livonia Corporate Center Buildings I & II, a building complex that will add over 900,000 square feet to the market by the end of 2017. One other construction project is Oerlikon Metco (US) Inc.'s 80,000-square-foot manufacturing facility at 41144 Concept Drive in Plymouth, which is expected to be completed by the end of 2017.

Southern Wayne
The Southern Wayne industrial submarket vacancy held steady at 2.1% during the second quarter, despite posting just over 115,000 square feet of positive absorption. The most notable deal of the quarter was Precision Material Handling's 151,000-square-foot lease at the Romulus Business Center on Van Born Road. With an inventory of 25.0 million square feet, the submarket's Class A and Class B bulk warehouse/distribution market has a vacancy of just 0.7%. With the exception of Chrysler's 500,000-square-foot build-to-suit, no other active construction projects are under way to add much-needed supply. The submarket's only proposed project is the Romulus Commerce Center, a four-building complex totaling 1.0 million square feet near the intersection of I-275 and Eureka on Wahrman Road. Meanwhile, Amazon is in the planning stages to build a new fulfilment center in Romulus. This follows the company's 1.0 million-square-foot build-to-suit distribution center under construction in Livonia and a 100,000-square-foot lease in the newly constructed Tri-County Commerce Center in Hazel Park.

About Newmark Knight Frank
Newmark Knight Frank (NKF) is one of the world's leading commercial real estate advisory firms. Together with London-based partner Knight Frank and independently-owned offices, NKF's 14,100 professionals operate from more than 400 offices in established and emerging property markets on six continents.

With roots dating back to 1929, NKF's strong foundation makes it one of the most trusted names in commercial real estate. NKF's full-service platform comprises BGC's real estate services segment, offering commercial real estate tenants, landlords, investors and developers a wide range of services including leasing; capital markets services, including investment sales, debt placement, appraisal, and valuation services; commercial mortgage brokerage services; as well as corporate advisory services, consulting, project and development management, and property and corporate facilities management services. For further information, visit www.ngkf.com.

NKF is a part of BGC Partners, Inc., a leading global brokerage company servicing the financial and real estate markets. BGC's common stock trades on the NASDAQ Global Select Market under the ticker symbol (NASDAQ: BGCP). BGC also has an outstanding bond issuance of Senior Notes due June 15, 2042, which trade on the New York Stock Exchange under the symbol (NYSE: BGCA). BGC Partners is led by Chairman and Chief Executive Officer Howard W. Lutnick. For more information, please visit www.bgcpartners.com.