The demand for space in the industrial real estate market is having a reeling effect on companies.
According to Bob Horn, senior vice president for JLL, a global commercial real estate services company, the national demand for industrial space is up 22% year-over-year and there are no signs of a slowdown.
Scott Rantala, vice president and market lead for JLL’s project and development services team in Grand Rapids, said the high demand for construction materials and industrial space is the result of, in part, a “buying spree” after the COVID-19 shutdown.
He said there are several reasons why supply has not kept pace with demand in the industrial market, including a lack of shovel-ready sites, delay times for materials and an increase in prices.
Shovel-ready sites, defined by the Michigan Economic Development Corporation (MEDC), include properties that already have a utility infrastructure, utility rate advantages, large contiguous tracts of developable land, access to transportation assets, and access to supply chain opportunities, which can attract businesses and project development.
“I think West Michigan — Grand Rapids — really needs to team up with other municipalities in the state of Michigan and with the state in getting shovel-ready sites for development,” Rantala said.
“When we come with a client in hand, there’s no time. They are saying, ‘What is ready? What is available now?’ They can’t wait a year or more to assemble the land and obtain entitlements. They need a property that is ready to go.”
MEDC now is working with municipalities in the state to bring industrial sites to shovel-ready status. The organization awarded $728,500 in site readiness grants last year to 10 industrial sites that were identified by communities and local partners. One of the grantees was Muskegon Area First for a site located at 5642 Grand Haven Road in Norton Shores.
Although MEDC is working to create shovel-ready sites, the effects of the lack of them were evident earlier this year when Ford decided to build its $11 billion battery plant in Tennessee.
“When Ford announced the battery plant, (MEDC) understood that void and they are starting to put emphasis on getting incentives to these developers to get some of these sites assembled,” Horn said. “The next stage is getting utilities to sites — water, sewer — and then these sites must be approved through the municipalities with zoning changes, so that takes time.
“When a site search is going on, those companies do not want to go through those variables that are unpredictable such as a township meeting where people don’t want a large industrial building, so they want something that’s shovel-ready and is already approved.”
Similar to other sectors in the real estate development industry, the industrial sector is suffering from longer wait times for materials.
“The one thing that’s just really driving us crazy on the job sites are material lead times,” Rantala said. “I am now tracking material lead items. In the past 35 years, I’ve never had to worry about that. Now I’m putting it on my construction schedule. Tracking the delivery times, I never had to do it before. Never.”
Horn said items such as dock doors, which usually had a delivery time of four to five days, now have a delivery time of up to 12 weeks.
“You take that one component and multiply it through all the other items such as HVAC units, dock plates and structural steel, it just takes a longer time,” Horn said. “I just got a quote the other day to get a building delivered and it is 14 months. It went from 16 weeks to 14 months.
“People want to get into the buildings. I’ve got several people who would like to get into buildings sooner than the building is completed. They are actually signing leases on buildings that have not been built yet.”
To combat the time delay and to meet the demand, Horn said the industry is looking at alternatives such as using different building products during construction. He said precast concrete buildings are becoming more popular in the Chicago and Indianapolis areas than they were in the past. The wall panels in those buildings are cast in concrete, which is more readily available, but the precast-concrete concept has not gained much popularity in Grand Rapids.
Horn said normally the large markets use pre-engineered buildings that have steel wall panel units.
The high demand and lengthening construction times also have led to an increase in prices. Usually, prices change once or twice per year, but now, Horn said, developers are seeing an increase monthly and sometimes daily.
Rantala said due to the post-COVID demand, no one could keep up, and as orders were being filled, ships that transported materials to U.S. ports were waiting to be unloaded.
“They say there’s a shortage of truck drivers but what it is, is there’s only a certain amount of those container flatbeds,” he said. “Once they unload the container from the ship, it gets taken off of the port site, but sometimes they’re stored in fields and that flatbed stays with that container. They need that little flatbed truck to go back to unload more containers and that’s part of the holdup.”
Rantala said he is experiencing the repercussions of that holdup.
“I just had a project where we paid, we knew the ship date, and all of a sudden the manufacturer called the supplier and they called us and said, ‘Oh, by the way, there’s a $4,000 increase in freight,’” he said. “He was supposed to ship it in three days. We’ve been waiting already for months, and three days before it’s supposed to be shipped, they changed and said here’s a $4,000 change order for freight.
“It’s like we’re being held hostage. That’s how we feel. That is what you have to deal with today, those types of situations. Until it’s actually shipped and on the job site, you have the risk of getting hit with price increases whether it’s on materials or shipping. That’s the reality of today.”