By Anthony Pellegrino III, P.A. Commercial
Detroit is the industrial, transnational logistics and auto powerhouse of the Midwest. Detroit has continued year after year to grow and transform its industrial sector in three prominent geographical locations. Each of these locations is anchored by auto innovation, creating a stable market for suppliers and transport:
1. The Mount Elliot Employment District: This is the home of General Motors’ $2.2 billion investment into its existing Hamtramck Assembly. GM is renaming it “GM Factory Zero” to represent its full dedication to electric vehicle production.
Anthony Pellegrino III, P.A. Commercial
2. Southeast Detroit: Fiat Chrysler’s $2.5 billion expansion to Jefferson North includes a new 1.4 million-square-foot Mack Avenue Engine Complex. This is part of a total $4.5 billion earmarked for Michigan plants.
3. Southwest Corktown: Ford is conducting an ongoing investment of $1.45 billion into its autonomous vehicle campus in an area called Corktown. The multi-building transformation is near Detroit’s international bridge and tunnel.
Each area contains various tax incentivized Opportunity Zones, New Market Tax Credits and qualified HUB Zones. According to Costar Group MLS, Greater Detroit has a healthy 4.6 percent vacancy rate while Detroit proper has a 9.45 percent vacancy rate for industrial buildings. Much of the 9.45 percent consists of antiquated or rehabilitation-required product. Time has exposed a desire for out-of-town tenants to continue to move to Detroit. However, there is a need for more qualified inventory to support their requirements.
While our trends are positive, there are existing challenges when competing to attract desirable out-of-town tenants seeking expansion. Those challenges are discussed at the end of the article. While vacancy rates stay steady, our new construction accounts for millions of added square feet over the last few years. Nearly all of the city’s new inventory has been strictly build-to-suit, rehabilitation and located in or near the three prominent industrial areas discussed below.
Mount Elliot District
The first of these areas is the Mount Elliot Employment District-GM Factory Zero. This area has experienced a great deal of rehabilitation and new construction. Gallagher-Kaiser (GK) is a recent example of a rehabilitated expansion. GK took its 100,000-square-foot Mount Elliot operation up to 250,000 square feet by purchasing the neighboring 150,000-square-foot structure and 10 acres of land.
At the end of 2018, Flex-N-Gate opened a brand-new $160 million manufacturing facility totaling 480,000 square feet. A more recent development that wrapped up in early 2021 is the new 600,000-square-foot facility for Dakkota Integrated Systems near I-94.
A well-known local developer who owns an industrial, hospitality and multifamily portfolio purchased a 261,000-square-foot facility on Mount Elliot in 2019 and rehabbed the facility. He has since leased half the building to strong qualified tenants. The same local developer also acquired another 300,000-square-foot facility down the road that has remained untouched. There is abundant rail and highway access throughout this segment of the market.
Southeast
The second area is to the Southeast and is experiencing concentrated growth directly resulting from the $2.5 billion Fiat Chrysler Automotive (FCA) investment. This industrial district is immediately south of Detroit City Airport. DCA is Detroit’s only private airport. FCA expanded the existing Jefferson North Assembly Plant and assigned Giffin Automotive as a partner in constructing the new facilities.
Giffin Automotive is a large paint and surface finishing company with locations in the U.S. and Mexico. Giffin acted as the general contractor for the new 1.4 million-square-foot facility. The company also constructed another 489,000-square-foot facility in Warren, Michigan. It is only a 20-minute drive between the two behemoth facilities.
Logistics also play a role in the industrial growth of the East side of Detroit. South of FCA, Jefferson North Assembly is an existing Crown Enterprise-owned 365,000-square-foot cross-dock facility. The cross-dock services the FCA supply chain and others moving parts in and out of town.
After FCA secured the land for the Mack Engine Assembly to the north with Giffin, a complex land swap with the city led to the ability for Crown to expand its cross-dock with an estimated 700,000 square feet of new construction. The overall development was an impactful move for the city, jobs and transport. This area also houses the marina districts before entering the apartment condo neighborhoods further west and downtown.
Southwest
The third thriving industrial district is the southwest quadrant of Detroit, often referred to as Corktown or Southwest Detroit. It has a much heavier industrial presence due to the heavy truck traffic and international trade. The Ambassador Bridge and tunnel allow trade and passenger traffic between the U.S. and Canada. This area has quick access to freeways I-75, I-96, I-94 and M10.
The Southwest houses industry groups such as transport, manufacturing, storage, steel operations, scrap operations, large towing yards, auto repair and automotive support for Ford Dearborn and Ford’s newly acquired Michigan Central Station (MCS). MCS was a long vacated 458,000-square-foot train station with an upper hotel that was never finished. Ford announced it as a $1.45 billion investment into its infrastructure and autonomous vehicle program utilizing the MCS and other buildings in the surrounding neighborhood.
Sunbelt and United rentals have also established a presence in this location. Sunbelt Equipment Rentals built out and fully renovated a leased space on Fort Street with the landlord’s assistance. United Rentals came next roughly three years ago with a smaller facility but a larger yard at nine acres. Both are equipment rental companies and often service large construction jobs.
Lastly, Dan Gilbert, the owner of Rocket Mortgage (RKT Cos.), recently diversified his office portfolio and purchased over 600,000 square feet of industrial space in 2020. The site was the former Sakthi Automotive campus, which went under after losing GM’s business. The purchase was very abnormal for RKT but was regarded as a wise decision by onlookers.
The robust growth of these three industrial submarkets is the result of various economic engines, public and private, that have successfully attracted industries and investors. Our private industries remain loyal and have reinvested into our neighborhoods and job markets. The Detroit Economic Growth Corp., the Jobs and Economy Team and Mayor Duggan have all done exceptionally well attracting business to our city. As a result, we are thriving and unified.
There remain challenges, however. Detroit often loses out to other cities when competing for tenants seeking large box industrial. Doesn’t Detroit have plenty of buildings and land?
Unfortunately, many of these buildings are antiquated in column spacing, ceiling heights, layouts, lack of yard availability and some fall between M1-M3 zoning, below the desired M4 zoning.
Many of our large land sites have expensive tear downs burdening the land and hindering development. Rezoning land in Detroit is a long and challenging process as well. Therefore, I see the historic Packard Plant, the land surrounding DCA and a few other sites being high on the city’s priority list for repurposing.
I am confident that the dynamic investment and manufacturing community in Detroit will continue to work with the city to expand the availability of industrial facilities and land. There are a lot of moving parts in the city and a great deal of opportunity.
Anthony Pellegrino III is a senior associate with P.A. Commercial. This article originally appeared in the July 2021 issue of Heartland Real Estate Business magazine.