HEARTLAND SNAPSHOT, FEBRUARY 2007

Detroit Industrial Market

John Savoy, President, Lee & Associates

The metro Detroit industrial market continues to rely heavily on the struggling automotive sector. Economic fluctuations have caused the big three American automobile producers — Ford Motor Company, General Motors and DaimlerChrysler — to focus on reorganization and downsizing efforts. Decreased automotive activity and production directly affect the numerous automotive-dependent suppliers and manufacturers residing in southeast Michigan, causing a domino effect of similar efforts in those firms as well. With vacancy rates currently at 11.5 percent and unemployment rates hovering around 7 percent, companies and property owners are struggling to diversify in an area known for and built upon the automotive industry.

Responding to metro Detroit’s weakened economy, the industrial market is anxious to provide solutions for empty space and the lack of activity. Tenants are taking advantage of lower rents and concessions, while developers are maximizing the potential of lower property prices by building new facilities in strategic locations. These efforts are encouraging the slow process of recovery necessary for the area to secure its future.

In the third quarter of 2006, seven buildings totaling more than 1 million square feet were completed. Currently, more than 560,000 square feet of industrial space, which is 69 percent pre-leased, is scheduled for construction. The Interstate 96 corridor is experiencing the most construction activity, with a total of more than 250,000 square feet of space (72.8 percent pre-leased) on the way. Significant developments in progress include 200,000 square feet in Detroit developed by Stuart Frankel Development Company and 180,000 square feet in the I-96 corridor developed by Quadrants Inc. Newly completed industrial developments include two facilities totaling more than 886,000 square feet in Oakland County constructed by Ashley Capital; a 172,000-square-foot building in Oakland County constructed by General Development Company; and the 155,000-square-foot Nalco facility in Lyon Township constructed by Quadrants Inc.

On the leasing side, several sizable tenants have absorbed space, including Kuka Flexible Production Services’ 312,000-square-foot lease in Chesterfield Township; Ryder Trucks’ 209,767-square-foot deal in Auburn Hills; and Cadence Innovation’s lease of a 172,939-square-foot facility in Troy. Additionally, Google’s move into 80,000 square feet of office space in Ann Arbor could have an ancillary effect on the industrial market.

Overall, the metro Detroit industrial market has seen some improvement in Macomb County and southern Wayne County, with significant growth of new product occurring in the I-96 corridor. Although the industrial market is slow to recover, competitive rental rates could provide an opportunity for metro Detroit to entice diversified manufacturing and warehouse tenants from outside the area to move into the market. Additionally, the Michigan Economic Development Corporation is providing incentives for companies growing in or relocating to Michigan, making significant efforts to attract jobs to the state. Metro Detroit’s economic recovery is dependant not only on the successful automotive reorganization, but also on diversification of the area’s major product manufacturers and suppliers.

— Jon G. Savoy serves as a president with Lee & Associates of Michigan in Novi, Michigan.




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