By Jason Capitani, L. Mason Capitani/CORFAC International
The automotive industry and business as a whole have always operated in cycles. Looking back at 2009, when Southeast Michigan faced significant challenges, the region’s recovery in the years that followed shows how resilient the local economy can be. Yet, as we navigate today’s post-COVID landscape, some still hope for a more gradual and stable recovery. Though questions remain about whether Detroit should have seen a market correction years ago, or if electric vehicle programs have artificially propped up the economy, only time will tell.
Michigan’s jobless rate hovers around 4 percent, lower than the national average of over 7 percent, marking the lowest level since before the pandemic. The state has added over 450,000 jobs since 2020. While the automotive sector remains dominant, other thriving industries include advanced manufacturing, defense, IT, medical devices, food processing and logistics.
L. Mason Capitani/CORFAC International
2025 outlook: early weakness with potential for shift
Demand for industrial space in late 2024 and early 2025 has been weaker, with net absorption at its lowest since 2021. This dip might signal a shift in the auto industry, with some speculating a return to hybrid or combustion engine production, though these decisions take time to materialize.
Vacancy rates in Southeast Michigan have slightly increased to around 4.4 percent. While traditional manufacturing buildings are still leasing and selling quickly, demand for warehouse and distribution spaces has softened, though it remains generally strong. The demand for high-tech space continues to be low, a trend persisting for several years. Key submarkets seeing activity include the I-96 corridor, the I-75 corridor and western Macomb County.
Has the industrial market peaked?
Detroit’s vacancy rate has remained relatively stable in recent years, showing slight softening. As a result, asking lease rates have stayed mostly flat. However, there’s still a significant shortage of available industrial properties, especially for sale, which has led to price increases for certain properties. While transactions are taking longer than they did a year ago, properties are still selling.
These factors suggest that the industrial market may be nearing its peak. Should vacancy rates rise and transactions slow further, lease rates and sales prices could decline. However, most forecasts predict a slowdown in 2025, followed by a steady economic recovery and continued positive net absorption.
Sales continue to outpace leasing
Leasing activity has softened recently, particularly among large distribution centers, where significant vacant space has skewed overall market statistics. On the other hand, smaller buildings (under 100,000 square feet) continue to lease quickly. Notable recent leases include a 700,000-square-foot build-to-suit for Piston Automotive at the former Palace of Auburn Hills, and a 450,000-square-foot lease by Metro International Trade Services in Dearborn.
Buildings for sale tend to move quickly, so those that remain on the market typically have some issue. Despite rising interest rates and sales prices, businesses are still opting to purchase rather than lease. For instance, Superior Electric recently acquired a 120,000-square-foot building in Auburn Hills.
Investment landscape: fewer great deals
In terms of investment, “great deals” are scarce in today’s market. With few high-cap rate opportunities, investors are turning to value-add properties. Factors such as tenant creditworthiness, building condition and whether rental rates are above or below market all play into investment decisions.
Cost of construction versus cost of doing business
The cost of construction has risen to a point where speculative and build-to-suit projects are becoming less viable. Large-scale buildings over 500,000 square feet may still make sense due to economies of scale, but smaller facilities are too expensive to justify. As a result, lease rates are rising, often surpassing $10 per square foot triple net with annual increases. This trend has led to a significant decrease in new projects.
Looking ahead
Overall, the industrial market in Detroit remains strong. Unlike the office and tech sectors, most industrial businesses require a physical presence, meaning companies are either renewing leases or relocating as their current ones expire. The automotive industry continues to drive Detroit’s industrial market, with over 100 Tier 1 suppliers for GM, Ford and Stellantis based in the area. However, logistics, aerospace and defense sectors are also seeing steady growth.
Jason Capitani is managing partner of L. Mason Capitani/CORFAC International. This article originally appeared in the February 2025 issue of Heartland Real Estate Business magazine.