New construction allowing companies and market to expand
West Michigan’s industrial market has grown back steadily since the recession, as companies within the region continue to benefit from the tailwinds created by the national economy entering its 94th straight month of expansion. Consumer confidence is strong, the housing maret has fully recovered, and the stock market has seen record highs.
Some headwinds do exist, however. Across the region and country, labor markets are relatively tight and employers are having difficulty finding skilled workers. As a result, employers will likely face higher costs in attracting new workers, as well as maintaining existing ones. Forecasts for car and light truck sales are lower for 2017 and 2018 than the 18 million–plus mark they hit in 2016, posing a potentially negative effect on these automakers’ supply chains. At the beginning of the year, forecasters at the Research Seminar in Quantitative Economics at the University of Michigan predicted a reduction in manufacturing employment in the state over the next two years; however, since then both Ford and Fiat Chrysler have made commitments to auto manufacturing in the state. Additionally, the strong dollar is affecting exports by driving up the cost of U.S. goods compared to those of foreign competitors; and the office furniture industry, which has a strong local presence in West Michigan, is seeing a plateauing of sales and index readings.
Legislation out of Washington that is affecting local manufacturers includes a proposed $54 billion hike in defense spending, which is good news for local aerospace suppliers across West Michigan. These companies include JedCo, Inc. in Grand Rapids, and Woodward, Inc. and Plascore, Inc. in Zeeland.
Overall occupancy in the West Michigan industrial market now sits at 94.74%, even after nearly 1.3 million square feet of new space was built and added to the market inventory in the first quarter. This translated into net quarterly absorption of 1,588,459 square feet. Average weighted asking rental rates showed little overall movement from a quarter ago, however the Northwest industrial submarket saw a nearly 12% increase, largely due to a number of new development opportunities listed for lease.
Completed transactions in the region increased from a quarter ago, with a 56% increase in sales and a 36% increase in leases. The 34 on-market leases completed is 11.5% higher than the quarterly average of 30.5 since 2013.
The market continues to see companies expand and move within it, and we saw a number of new companies come to the market as well in the first quarter. With limited options, creative solutions and off-market deals continue to drive activity – a theme we have seen over the past number of quarters.
Click here to read the full Q1 2017 Industrial Market Report