Southeast Michigan has enjoyed a decade of prosperity surrounding the revitalization of downtown Detroit led by billionaire businessman and Quicken Loans Founder Dan Gilbert. Detroit has 580 million square feet of industrial space and is projected to see another 5 million square feet by 2021, much of that distribution-focused.
In the past decade, Southeast Michigan has become a hub for driverless car technology. Toyota has announced plans to create an autonomous vehicle research facility in Ann Arbor and Ford Motor Co. has purchased the former Detroit train station to create an autonomous vehicle research center.
In addition, the state of Michigan partnered with the University of Michigan to convert an old World War II air base into a 500-acre autonomous vehicle testing ground. The American Center for Mobility at Willow Run located in Ypsilanti Township operates as a global center for testing, research, education and product development, and serves companies such as Microsoft, AT&T, Ford, Toyota and Hyundai.
The GM strike has recently been resolved, a relief to smaller automotive suppliers. High costs of construction, due to the international trade war as well as labor shortages, have resulted in limited inventory, therefore increasing the value of existing facilities.
Construction, leasing drivers
In 2019, Amazon announced plans for a five-story, 3.7 million-square-foot distribution center on the former Pontiac Silverdome site in Pontiac, a result of the pressure it faces to continue to meet its shipping model. Amazon continues to expand and is still very active in the market. In the fourth quarter of 2019, the Sterling Group — along with the Texas-based real estate company of Ross Perot, Hillwood Enterprises — announced plans to develop a 600,000-square-foot logistics park at the Old Pinnacle Horse Race Track located off of Vining Road between Sibley and Pennsylvania roads in Huron Township.
Ashley Capital is currently in the process of developing a 265-acre, 1.5 million-square-foot distribution hub near the Detroit Metropolitan Airport in Van Buren Township. The area is attractive to distributors due to its proximity to the airport and its outstanding freeway access to I-94 and I-275. Two of the four proposed buildings are currently under construction and are expected to be delivered in the third quarter of 2020.
Detroit deliveries totaled 3.4 million square feet in 2019, one of the largest being a 461,525-square-foot build-to-suit for the Fanuc Corp. Michigan headquarters, a robotic automotive supplier based out of Japan. The building located at 1100 Entrance Drive in Auburn Hills was built by General Development Co., a local developer based in Southfield.
The Detroit industrial real estate market had a positive net absorption of 975,223 square feet in 2019. The market vacancy rate hit a historical low averaging 3.5 percent. The average rental rate rose to $6.77 for the first time since the year 2000.
The automotive industry has driven the market for the past decade and that trend continued in 2019. In the first quarter of 2019, Mayco International, a tier 1 automotive supplier, leased a 164,153-square-foot freestanding manufacturing facility in Fraser. Piston Automotive, a Southfield-based assembly supplier, renewed its lease to remain in its 263,948-square-foot space in the Pinnacle Logistics Park in Redford. Dakkota Integrated Systems, a majority partner of Magna International Inc., leased a 423,271-square-foot portion of distribution space in the Tri-County Commerce Center located in Hazel Park. The entire 651,610-square-foot facility is now fully leased.
Investment sales appetite
New York-based investment group Cantor Commercial Real Estate purchased Amazon’s 1 million-square-foot regional distribution center located at 39000 Amrhein Road in Livonia for $86.7 million or $85.95 per square foot. The facility contains 95 exterior docks and features a clear height of 36 feet. Ashley Capital was the seller.
In the second quarter of 2019, local investment group Promanas Group sold a nine-property, 1.4 million-square-foot portfolio for $83.7 million to Florida-based Morning Calm Management. The portfolio included facilities in Wayne, Oakland and Macomb counties.
Investment activity has increased, with almost $300 million trading hands in the first half of 2019 alone. Developers, venture capitalists and investors eye fully leased, single-tenant industrial facilities occupied by nationally credited tenants. With high costs of construction, investors are currently valuing existing buildings based on a “what would it cost to replicate” approach.
The Southeast Michigan industrial market is poised for continuous growth as we move into the next decade. Manufacturing companies, distributors and autonomous technology will continue to pave the way for the future ahead.
— By Nick Savoy, Industrial Associate, Lee & Associates of Michigan. This article originally appeared in the February 2020 issue of Heartland Real Estate Business magazine.