Signature Associates

Uptick in demand for Macomb County industrial space may signal rebound

Up until last month, the industrial market in Macomb County was performing about as well as any in the region.

The vacancy rate in Metro Detroit was 4 percent across nearly 399 million square feet, with one-fifth of that market, or nearly 83 million square feet, in Macomb County outpacing the region at just 2.8 percent vacancy, according to a first-quarter report from the brokerage firm Newmark Knight Frank. Warehouse/distribution space ($6.52 per square foot) and general industrial ($5.25 per square foot) bested the regional average of $5.30 and $5.53 per square foot, respectively.

Then March 10 hit, the day the first coronavirus cases in Michigan were revealed, and everything was upended. The state’s stay-at-home order has prompted businesses to shut down, and many had already halted operations to prevent the spread of COVID-19.

“The repercussions of the virus on the industrial real estate market are likely to be a halt to new construction starts, as manufacturing comes to a standstill; a decrease in leasing activity; downward pressure on rents, as tenants become financially burdened; and increased vacancies,” the Q1 report reads.

Peter Burton, principal of Bingham Farms-based developer Burton-Katzman LLC, said a dozen tenants in the company’s approximately 45-building, 5 million-square-foot industrial portfolio have asked for rent relief for several months as a result of the coronavirus outbreak. That has been tricky because lease modifications need lender approval, Burton said.

“But there hasn’t yet been a single instance where a lender said they’re not going to cooperate, which is really a fantastic time because typically lenders won’t,” he said.

And Kevin Hegg, vice president in the Canton Township office of New York City-based industrial/warehouse developer and landlord Ashley Capital, said many tenants on the company’s rent rolls have asked for rent deferral.

But there has also been an uptick in the need for warehouse space, he said, with short-term requests of three months to a year for space ranging from 150,000 to 200,000 square feet.

“We received calls from national grocery store chains looking to stockpile paper products early on to disinfectant companies that make sanitizers and hand wipes who have trailer loads full of products that they need to place quickly,” Hegg said. “We’ve also been contacted by logistics companies that are handling personal protective equipment for customers that are working in conjunction with FEMA.”

Peter J. Kepic, senior vice president specializing in industrial real estate in the Southfield office of brokerage house Colliers International Inc., has seen a similar uptick in demand.

“While we are obviously seeing a temporary slowdown in activity due to stay-at-home orders, we’ve seen a spike in activity for short-term needs supporting COVID-19 related issues,” he said. “For example, we have seen a recent demand for temporary warehousing of supplies and manufacturing of medical equipment, hand sanitizer, etc. These are short-term deals but plugging the few holes that exist throughout Macomb County while we work through the current situation.”

Hegg remains confident that when the dust settles, the industrial market will continue its hot streak.

“Right now, if we come out of this relatively quickly, the demand that was there before this happened didn’t go away,” he said. “It’s just been put on the back burner. So a tight market is probably going to get tighter and, knock on wood, I’m fairly optimistic.”

And Kepic says industrial real estate will be quick on the rebound.

“The general sense is that industrial space will be the first to bounce back and should hopefully remain a bright spot in the real estate economy as we come out of this,” Kepic said.

Posted By: Crain’s Detroit Business on April 19, 2020.  For more information, please click here to read the source article.

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