It’s getting more difficult to find existing industrial facilities like this one for sale. Courtesy NAI Wisinski
There’s a trend in the Grand Rapids-area industrial market that Stu Kingma is keeping his eye on.
With this year’s rough winter now in the rearview mirror, Kingma, an associate broker with NAI Wisinski of West Michigan, has seen a spike in industrial real estate growth and construction.
During the Great Recession, the local industrial market was troubled, but as “that ship righted itself,” he said, demand for industrial space began picking up.
A lot of the work Kingma was doing during the recession was for bank assignments — when a bank had taken a building back because of non-payments and needed it disposed of.
Those days, however, are much rarer now.
“That was a significant part of the market for two or three years running. There were a lot of bank properties on the market, a lot of distressed real estate, a lot of borrowers underwater, and so our business model shifted a bit from helping companies who were growing and needing space, to working for banks that took back buildings they didn’t want,” he said.
“That part of business has shrunk dramatically. Now the vast majority of our business is no longer entirely driven by bank work.”
The portion of the market that experienced demand first was free-standing buildings that were for sale, Kingma said. Prices were depressed from the highs of 2005-2006, but steady acceleration started again in 2011-2012.
Now, that acceleration is proceeding at breakneck speed, he said, adding that the long winter likely contributed to pent-up demand.
At the heart of that new trend, however, is the fact that manufacturing in Michigan is back, Kingma said. Auto suppliers, alternative energy providers and food manufacturers are looking for industrial space in West Michigan, he said, and the impact is major.
“(Manufacturing) is up substantially from where it was. Automotive is the biggest driver,” he said.
“We sold 9.5 million vehicles back at the bottom, and we’re pushing 16-17 million vehicles now. You compound that many cars over the industries and the businesses it takes to produce the parts — it’s a monumental change in demand.”
Although leasing industrial space locally is still possible, those spaces are becoming rare, Kingma said. Trying to find a facility with 40,000 to 50,000 square feet of usable space is slim pickings, and finding one with 100,000 or more square feet is next to impossible, he said.
Lease rates also are up significantly from 18 months ago, Kingma said, while leasing opportunities are diminishing because those spaces are being gobbled up.
The next logical step, therefore, will be construction, which has been noted around the region in Grand Rapids, Wyoming, Walker, Kentwood and Grandville, he said. The cost of new construction has risen, however, as the price of building materials continues to climb. Kingma said that, even so, the increase in demand might be enough to tip the scales toward building new.
“The ranges we have been quoted on a typical industrial facility of 50,000 square feet range from $40 to $55 per foot. That’s a wide range, but it depends on power, office and other amenities,” he said.
“If you look at what those buildings have been selling for on the market over the last 36 months, it ranges from a low of $20 to a high of maybe $32 per foot to buy a used building. So there’s a big difference.”
The rate and intensity of the rebound compounds the likelihood of an increase in incremental job growth, Kingma said. And that’s something Grand Rapids desperately needs.
“We saw a lot of pain throughout the recession. We saw long-term businesses suffer and cease to exist,” he said.
“Now it’s going the other way — you’ve got businesses growing again, and as a result of that growth, they’re giving their employees a stable experience. It’s exciting to see the growth because it’s positive again. … Grand Rapids is back.”