Industrial, the Darling of Commercial Real Estate

Industrial is the darling of commercial real estate investing. A continued uptick in Metro Detroit’s industrial sector has created a healthy buying pool of local and out of town investors; everybody is feeling optimistic. E-Commerce, manufacturing, and technology are the sectors driving industrial demand and development in our region and around the country. Leading demand in the industrial sector across the U.S. are logistics and packaging companies (3PLs). In Metro Detroit this quarter, Penske Logistics, a transportation services company preleased 590,000 square feet in Ashley Capital’s newly constructed 745,694 square-foot warehouse at Livonia Corporate Center, in Livonia, Michigan. Landsberg Orora, a specialized packaging company and Safelite Fulfillment, an auto glass fulfillment facility, will occupy the remaining space. Experi-Metal, a metal manufacturer, preleased 182,000 square feet of new construction warehouse space in Livonia Corporate Center I and the third warehouse of 754,744 square feet is occupied by Ford Motor Company. Wayne County’s Airport / I-275 submarket is hot for occupiers in the 3PL sector. 

Quick to follow, in our region and across the U.S., are e-commerce occupiers. In the U.S., e-commerce sales were $453.5 billion in 2017 and are expected to grow by 16% by 2021. Surges in online sales and the need to get products to consumers quickly, while minimizing supply chain costs, are forcing retailers and wholesalers to move into “final mile” fulfillment facilities throughout the country and rapidly changing the supply chain strategy. E-commerce occupiers tend to need larger buildings compared to other occupier types and aren’t as concerned with features and amenities as much as they are concerned with being located in densely populated areas so they can reach the end consumer faster. These changes will be a major contributor to industrial real estate demand for the foreseeable future. This quarter, Amazon announced plans to add a fourth fulfillment center in Caledonia, Michigan. In the last two years, Amazon broke ground on three fulfillment centers totaling 2,856,000 square feet in Metro Detroit. 

Manufacturing in the region continues to expand for multiple reasons such as increased international transportation costs and newly instituted government policies. Industrial related hiring is booming with employment at all-time highs for couriers, warehouse workers and truck drivers. This quarter, Mihindra Automotive North America, an automotive manufacturing OEM, announced plans to reenter the market after a failed attempt in 2010. Mihindra is the first non-Detroit automaker to enter the market since Mazda, then partly owned by Ford Motor Company, in 1987. Mahindra is investing $230 million in three Detroit-area operations including a warehouse and logistics center in Pontiac, a prototype and engineering operation in Troy and a vehicle assembly plant in Auburn Hills. They were attracted to Detroit because of economic incentives, access to a diverse talent pool, and automotive resources.