The demand for industrial space Tight Supply Transforming the Market
Economic data related to the U.S. industrial real estate market is pointing in a positive direction. The national availability rate was essentially unchanged in Q1 2017, even in the face of increased supply.
CBRE Econometric Advisors estimates about 45 million sq. ft. of industrial space was completed in Q1, which is the highest first-quarter level since 2008. The surge in construction is welcome given broad-based tenant demand, which is being supported by a number of positive economic drivers. While there is no one surefire indicator to gauge future demand, the totality of the economic data makes us optimistic that the industrial market will remain relatively balanced in the coming quarters despite a flush construction pipeline.
Although trade will likely be a net negative for U.S. GDP growth in Q1 2017, the wider trade deficit is a plus for the industrial market as imports generate more aggregate warehouse demand than exports. One note of caution is the softer import volume of auto parts; this could hurt leasing activity in certain Midwest industrial markets if auto sales continue to weaken as they did in March.
When looking at the greater Lansing area, we see demand for space has been climbing at a consistent rate, but hesitation is still present as to what the rest of the year will hold.
“As the case has been historically, the future of the industrial market in the greater Lansing area will be largely affected by how GM performs,” noted Chris Miller, associate, Industrial & Logistics, CBRE|Martin.
The industrial market is directly impacted on a local level by General Motors. With the recent layoffs and rehiring within GM there is uncertainty as to what effect this will have on the market, and this will be something to watch for over the next 12-18 months.
Outside of the auto industry, activity of new and existing industrial occupiers is expected to continue to increase. “As a team, knowing what is essential for our clients and meeting their ongoing occupancy needs is extremely important,” added Julie O’Brien, senior associate, Industrial & Logistics, CBRE|Martin.
Locally, large warehousing and manufacturing facilities with optimal building specifications are in short supply and many large occupiers are focusing on build-to-suit projects to meet their space needs. Newly available is one of the largest manufacturing and distribution sites in the area. With over 650,000 sq. ft. on 102 acres, 500 E. Packard Highway in Charlotte is a central Midwest location accessible to a ready and available workforce that will attract a wide array of interest. The owners, who recently purchased the expansive property, are considering a number of improvement options to increase marketability and space utilization.
Transforming existing industrial properties to meet market demand is a growing reality. Smaller sized industrial properties ranging from 10,000 sq. ft. to 50,000 sq. ft. may require significant improvements to either open the space up or divide the space into smaller suites for multi-tenant use. With a tight inventory of suitable properties, tenants are seeking flexibility from landlords to turn existing, well-located properties into useable space and landlords are willing. By reinvesting, property owners are transforming their existing buildings in order to keep their investments relevant to the market.
Wide ranging tenant demand for industrial real estate has surged locally, mirroring national market activity. International trade, growth in factory orders, solid retail sales, e-commerce gains, and optimistic consumer sentiment are positive indicators for ongoing, steady demand for industrial real estate.