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Why Institutional Investors are Gravitating Towards the Detroit Market

By: Luke Timmis
 
The industrial sector in the United States is having its golden hour, or maybe it is more accurate to say a golden decade. America’s reliance on speedy distribution channels, pushed even further due to the “Amazon Effect”, has permeated all aspects of the industrial sector. The demand for mission-critical real estate for an efficient supply chain has never been higher which continues to positively impact industrial values. As a long-established industrial hub, several factors converged in Detroit which have led to an increase in interest from institutional investors.

One of Amazon’s biggest impacts on the country has been the supply distribution chain. To stay current, other companies have had to scramble to get their distribution centers on par to compete. Within the last 3 years, Amazon alone has leased millions of square feet in the Metro Detroit area, causing development companies to build more build-to-suit warehouse space to fill the demand.

Then COVID-19 happened. Once whole industries began to close, people turned to the internet to get everything from groceries and clothes to prescriptions and appliances. Businesses again had to rush to secure distribution lines to meet with the increased demand. Industrial buildings, warehouses, and build-to-suits began to look even more appealing.

Signature’s Sale-Leaseback Team reached out to 20 public and private REITs (Real Estate Investment Trusts) in March and April 2020 to gather intel on occupancy levels. What we found is that REITs were collecting anywhere from 92-100% of the rent from their respective industrial portfolios national.

What Does this Mean for the Detroit Industrial Market?

The pandemic fundamentally changed the risk profile of industrial properties.  The strong performance of the national industrial sector during the pandemic highlighted the resilient nature of the asset class in general.

Secondly, prior to the pandemic, Detroit had already emerged as a top-five industrial market in the United States based on occupancy, lease rate, and sale value statistics.  In fact, investors have taken note that the Tri-County industrial market boasts an impressive ~4.9% vacancy rate.

So, while the Metro Detroit market was already recognized as a national leader, the strong performance of industrial properties nationally amid COVID-19 will amplify global investment interests moving forward.  As institutional investors increasingly gravitate toward markets like Detroit, industrial property owners will benefit from substantial value growth.

From our research efforts, we believe that the ‘Amazon Effect’, the pandemic-proof resilience of the industrial sector, and the nationally leading market statistics all contribute to our extremely bullish expectations for the Metro Detroit industrial market for the next decade, at least.

Want more advice on how to handle your real estate assets during this time? Contact Signature Associates at (248) 948 – 9000 and subscribe to our newsletter here for even more industry updates.

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