“The greater Grand Rapids area and West Michigan as a whole have long been committed to manufacturing. With a strong skilled workforce and a strategic upper-Midwest location, Grand Rapids’ manufacturing economy has allowed the region to weather the latest recession and come out of it with a great deal of momentum. Known for the manufacturing and distribution of automotive parts, office furniture and food products, West Michigan is home to a number of global headquarters for companies such as Lacks Enterprises, Steelcase, Herman Miller, Gordon Food Service and Amway.
With a relatively low cost of living, an abundance of recreational opportunities and a strong entrepreneurial spirit, Grand Rapids has seen steady growth in manufacturing employment and production over much of the past decade.” — John Kuiper, Executive Vice President | West Michigan
The Grand Rapids industrial market has grown steadily since the recession, as companies continue to benefit from the tailwinds created by the national economy entering its 98th straight month of expansion. The region is one of the top manufacturers of automobile parts in the country, supporting a growing manufacturing and distribution real estate market with low vacancy rates, robust absorption and the highest asking rental rates for the market in a decade.
Grand Rapids is the second-largest city in Michigan and a burgeoning manufacturing market. According to The Right Place, West Michigan’s leading economic development organization, Grand Rapids is home to industry leaders in applied technology, sustainable practices and industrial design.
With approximately four out of five manufacturers in the greater Grand Rapids region operating with fewer than 250 employees, these manufacturers are lean, innovative and offer a wide variety of capabilities. Manufacturing currently accounts for 15% of all jobs in the West Michigan region — compared with 8.5% in the United States as a whole — and remains the heart of West Michigan’s economy.
After peaking at 9% in 2009, overall vacancy rates in Grand Rapids have steadily declined to 5.3% — the lowest point in a decade. Manufacturing growth in the U.S. has created the need for additional space in the region.
This was recently evidenced by California Closets leasing nearly 140,000 square feet in the area southeast of the Gerald R. Ford International Airport, having selected the region due to its pedigree of designers and skilled craftsmen. The company is investing approximately $5.7 million to develop the facility, with help from a $335,000 performance-based grant from the Michigan Economic Development Corporation. Additionally, Italy-based Siliconature Corporation announced it will establish the company’s first North American manufacturing facility in the region.
More than 1.5 million square feet, much of which includes newly constructed inventory, were absorbed in Grand Rapids in Q1 2017, making it the second-ranked growth market in the country in terms of absorption as a percent of inventory. The positive absorption for the quarter surpassed the annual totals over the prior three years.
With automotive manufacturing reaching a plateau, it is expected that manufacturing for the aerospace industry will continue to propel the market forward. As Washington, D.C. is expected to increase the U.S. defense budget, local companies such as JedoCo, Inc., Woodward, Inc. and Plascore, Inc. should benefit.
Just under 1 million square feet of new construction in the greater Grand Rapids area were completed in Q1 2017, with 1.3 million square feet currently under construction. It is forecasted that 2017 will produce the most new development in the market in more than a decade.
Pure speculative construction is still tempered, as construction costs remain inflated and developers are cautious about future demand and the lease rates needed to recoup building costs. However, new build-to-suit and existing building expansions are occurring, releasing pent-up demand that accumulated throughout the recovery. These projects often include speculative components to accommodate future expansion needs, while providing interim opportunities to lease for additional revenue.
One notable development project in 2017 is Lacks Industries completing approximately 500,000 square feet of new warehouse space. Another is the in-progress phase two element of Robert Grooters Development Co.’s Area 52 project near the airport. Once completed, the Area 52 development will represent another 500,000+ square feet of space.
As vacancy continues to dwindle, asking rates are ascending — finishing Q1 2017 at $4.39 per square foot per year (NNN), the highest average in a decade. This is due in large part to several proposed development sites that have been brought to market recently. As this new inventory is built and added to the market, we expect rates to remain firm due to the cost of construction.
|Inventory||Overall Vacancy Rate||Overall Net Absorption||New Supply (Construction)||Under Construction||Asking Rental Rate (psf/yr)|
|Overall Vacancy Rate Q1 2016||Overall Vacancy Rate Q1 2017||Asking Rental Rate Q1 2016||Asking Rental Rate Q1 2017|
500,000 SF +
Source: Colliers International
For more insights, learn about the top 10 U.S. industrial emerging markets positioned to experience the most robust increases in demand from occupiers and owners. And stay tuned for more Industrial Market Spotlights!
James Breeze is National Director of Industrial Research for Colliers International in the United States. Based in the Greater Los Angeles area, he prepares quarterly and specialized industrial research reports and interprets trends and data across the country.