2011 Q4 - Industrial Market Trends

1. Q4 2011 | INDUSTRIAL
WEST MICHIGAN
RESEARCH & FORECAST REPORT
Availability Not Painting True Picture
of Industrial Market
EXECUTIVE SUMMARY
The fourth quarter couldn’t maintain the momentum that the industrial market created over the course
of the year. The quarter was the first of the year to return negative absorption; however, the outlook
is still bright. As the commercial real estate market continues to adjust to a new economic reality, the
industrial sector seems less phased. West Michigan continues to be an example of how staying true
MARKET INDICATORS to one’s roots can help overcome obstacles, as manufacturing continues to stay strong in the area.
Even with businesses downsizing, merging, or closing doors, the industrial market saw more than
Q4 2011 Q1 2012*
422,000 square feet of competitive industrial space filled over the course of the year. Manufacturers
VACANCY
are increasingly looking towards West Michigan for answers to their real estate problems, a trend that
landlords and investors alike should be excited about.
NET ABSORPTION
Over the course of the second half of the year, the concentration of manufacturing jobs increased in
RENTAL RATE all but one of the six West Michigan metro areas, with an overall growth of 5.7%. A number of
companies are in the process of entering the market or expanding within it, something that we haven’t
CONSTRUCTION —
seen a whole lot of over the past couple of years. Industrial rental rates have firmed up quicker than
*projected other product types and landlords are now on stable enough footing to search for quality tenants. This
growth has created a divide in the market, however. Quality industrial space is so heavily sought after,
SUBMARKET MAP
that there simply isn’t enough of it to go around. Companies are looking for spaces that fit their
96
4 Mile Rd NW
4 Mile Rd NE specific needs, and functionally obsolete buildings that would need time and money to bring to
specification are receiving far less attention.
96
Knapp St NE
44
96
NW 131
Knapp St NE
NE
Pe
ttis
Leonard St NE Leonard St NE Av
eN
E
DTWN 196
45 45 196
96
E Fulton St E Fulton St
COMPLETIONS VS. ABSORPTION | QUARTERLY (in thousands of SF)
21
Hall St SE Ca
sca
196 96 de
Rd
11 44 SE
Dr
SW
500
“Despite three quarters
go
196 ica
Ch
Clyde Park Ave SW
28th St SW 28th St SE 28th St SE
11 11
Baldwin St
SW SE of positive absorption,
Breton Rd SE
36th St SE
196
Kalamazoo Ave SE
S Division Ave
Eastern Ave SE
44th St SW
131
44th St SE
Gerald R. Ford
96
the last quarter of 2011
250
Byron Center Ave SW
International
dipped into the negative”
Airport
52nd St SW 37
196 6
Industrial Submarkets
6
6 6 NW Northwest
68th St SE
NE Northeast
DTWN Downtown
SW Southwest
SE Southeast
76th St SE
0
-250
-500 Absorbed
4Q 09 2Q 10 4Q 10 2Q 11 4Q 11 Completed
www.colliers.com

2. RESEARCH & FORECAST REPORT | Q4 2011 | INDUSTRIAL | WEST MICHIGAN
Simply put, market perception continues to trail 37% decrease. We feel this statistic is an
VACANCY RATE market reality. There are a number of vacant important one that helps reveal how the market
Quarterly
spaces and many of them are becoming less and is reacting to current conditions.
10%
less competitive. The Northwest submarket of
Grand Rapids saw its vacancy rate rise by 40 Another useful measurement is average asking
basis points, while the Southeast submarket sale and lease prices. Industrial sale prices have
9% lowered its vacancy by 20 basis points, a sign increased more than 17% since the start of the
that the market is reacting differently based on year and nearly 22% since the end of the first
the quality of product available. quarter, bringing capitalization rates down as
8% well. Average asked lease rates have remained
4Q 09 2Q 10 4Q 10 2Q 11 4Q 11
CURRENT CONDITIONS relatively stable through much of the year, but
have clearly bottomed out and are looking to
Vacancy rose in the fourth quarter to 8.8%, trend back upwards. It is important to remember,
although it is down for the year from its 9.2% though, that these averages paint the market
ASKING RENTAL RATES starting place. Despite seeing an increase in picture with a single brush stroke, despite
Quarterly ($/SF/Yr. Triple Net) vacancy, overall activity picked up from last different segments of the market and different
$5 quarter. There were 31 sales in the marketplace industrial building types behaving very differently.
compared to 28 a quarter ago. Leasing velocity True market knowledge is as important as ever.
$4 picked up as well, growing from 42 leases last Creative solutions to real estate needs continue
quarter to 52 in the fourth quarter. Again, despite to push deals through the sludge of the economy.
$3 the perception of an abundance of empty In the fourth quarter, we saw Lumbermen’s,
buildings, good quality space that is flexible is Inc.’s needs filled by finalizing a deal to put them
$2 being transacted at an increased rate. into 200,000 square feet at 8715 Byron
4Q 09 2Q 10 4Q 10 2Q 11 4Q 11
Commerce Drive. To make this move happen,
R&D/Flex General Warehouse/ A useful metric for measuring the market is however, two existing tenants needed to be
Industrial Distribution average time a building or space is listed before relocated. Colliers then negotiated deals to move
being transacted. In 2009, this number was R.E.D. Stamp, Inc. into 46,000 square feet at
approximately 216 days. By the end of 2010, the 3800 Patterson and R.L. Plastic Inc. into 100,000
number had climbed to nearly 345 days; square feet at 7377 Expressway Drive. In total,
however, 2011 brought a reversal of this trend. nearly 350,000 square feet of industrial space
Spaces are being transacted at a quicker rate, was transacted, a deal with a lot of moving parts,
and thus the average time on market has since but one that was orchestrated using creativity
fallen back down to roughly 219 days, a nearly and market knowledge.
RECENT TRANSACTIONS
SALES ACTIVITY
PROPERTY ADDRESS SIZE SF SALE PRICE PURCHASER SUBMARKET CITY
3403 Lousma Dr. SE 12,080 $235,000 Fisk Reeds Re, LLC Southeast Wyoming
5633 52nd St. SE 56,990 $650,000 SSBB, Inc Southeast Grand Rapids
879 Productions Pl. 24,600 $587,500 LH Partners, LLC Holland - South Holland
11007 Chicago Dr. 39,200 $289,000 Square Foot Leasing, LLC Holland - South Holland
4909 Wayne Rd. 216,390 $850,000 Behnke Logistics, LLC Battle Creek FCIP/Airport Battle Creek
13401 New Holland St. 57,000 $325,000 NH Building IOT, LLC Holland - North Holland
5670 West River Dr. NE 44,264 $900,000 Rodriguez Investments, LLC Northeast Belmont
LEASING ACTIVITY
PROPERTY ADDRESS SIZE SF LEASE TYPE TENANT SUBMARKET CITY
5079 33rd St. SE 85,595 Relocation ATEK Medical, LLC Southeast Grand Rapids
11373 E. Lakewood Blvd. 13,692 Relocation Xact Industries, Inc Holland - North Holland
101 E. Roosevelt 15,000 Renewal - Expansion Outsource One, Inc Lakeshore - Zeeland Zeeland
4140 East Paris Ave. SE 152,700 Renewal X-Pedx (International Paper) Southeast Kentwood
1525 Gezon Pkwy. SW 12,000 New Deal United Logic, Inc Southwest Wyoming
12688 New Holland St. 50,053 New Deal J.R. Automation Technologies, LLC Holland - North Holland
5801 Weller Ct. SW 9,600 New Deal Honeywell International Southwest Wyoming
P. 2 | COLLIERS INTERNATIONAL

3. RESEARCH & FORECAST REPORT | Q4 2011 | INDUSTRIAL | WEST MICHIGAN
NET AVG.
TOTAL TOTAL VACANCY RATE ABSORPTION ASKING
SUBMARKET BLDG TOTAL SF VACANT SF VACANCY RATE PRIOR QTR CURRENT QTR RENT
DOWNTOWN
General 237 10,704,364 328,112 3.1% 3.1% - $2.49
Incubator 5 74,307 - 0.0% 0.0% - $-
R&D/Flex 1 95,000 - 0.0% 0.0% - $-
Warehouse/Storage 8 1,273,941 25,000 2.0% 2.0% - $2.63
TOTAL 251 12,147,612 353,112 2.9% - $2.47
NORTHEAST
General 132 5,648,814 355,621 6.3% 6.5% 9,810 $4.35
Incubator 0 - - 0.0% 0.0% - $-
R&D/Flex 6 75,511 15,509 20.5% 20.5% - $6.38
Warehouse/Storage 1 12,000 - 0.0% 0.0% - $-
TOTAL 139 5,736,325 371,130 6.5% 9,810 $4.37
NORTHWEST
General 249 11,219,878 1,120,187 10.0% 9.9% (10,700) $3.15
Incubator 6 116,772 5,500 4.7% 4.7% - $3.75
R&D/Flex 3 61,844 7,844 12.7% 12.7% - $3.80
Warehouse/Storage 26 4,562,916 1,003,570 22.0% 20.9% (50,750) $2.88
TOTAL 284 15,961,410 2,137,101 13.4% 13.0% (61,450) $3.08
SOUTHEAST
General 602 38,064,739 3,491,013 9.2% 9.4% 95,470 $2.99
Incubator 2 17,572 5,000 28.5% 28.5% - $7.50
R&D/Flex 63 2,019,721 348,304 17.2% 17.2% - $4.50
Warehouse/Storage 48 8,609,933 1,038,843 12.1% 12.1% - $3.15
TOTAL 715 48,711,965 4,883,160 10.0% 95,470 $3.08
SOUTHWEST
General 451 21,581,037 1,541,338 7.1% 6.4% (102,382) $3.50
Incubator 5 108,003 5,500 5.1% 5.1% - $2.85
R&D/Flex 27 943,023 186,157 19.7% 15.7% (38,484) $4.90
Warehouse/Storage 39 7,026,321 452,633 6.4% 6.0% (30,000) $3.18
TOTAL 522 29,658,384 2,185,628 7.4% 6.6% (170,866) $3.47
MARKET TOTAL
General 1671 87,218,832 6,836,271 7.8% 7.7% (7,802) $3.16
Incubator 18 316,654 16,000 5.1% 5.1% - $2.77
R&D/Flex 100 3,195,099 557,814 17.5% 16.3% (38,484) $4.52
Warehouse/Storage 122 21,485,111 2,520,046 11.7% 11.4% (80,750) $3.07
TOTAL 1,911 112,215,696 9,930,131 8.8% 8.7% (127,036) $3.18
NET AVG.
TOTAL TOTAL VACANCY RATE ABSORPTION ASKING
BLDG TOTAL SF VACANT SF VACANCY RATE PRIOR QTR CURRENT QTR RENT
QUARTERLY COMPARISON AND TOTALS
Q4-11 1,911 112,215,696 9,930,131 8.8% 8.7% (127,036) $3.18
Q3-11 1,912 112,297,636 9,718,325 8.7% 8.9% 190,635 $3.11
Q2-11 1,912 112,555,180 9,978,160 8.9% 9.2% 357,943 $3.10
COLLIERS INTERNATIONAL | P. 3

4. RESEARCH & FORECAST REPORT | Q4 2011 | INDUSTRIAL | WEST MICHIGAN
Current and planned construction has remained A LOOK AHEAD
minimal but not non-existent. Meijer Inc. is
investing $7.6 million into an existing site in
• As manufacturing inventory continues to
dwindle, look for users to consider warehouse
512 offices in
Grandville to turn it into a processing, packaging,
and distribution center. The plan includes adding
space. 61 countries on
25-30 employees. Continental Dairy is opening a • General Motors will finish the tear-down of
its site on 36th street, and re-development
6 continents
new plant in Coopersville, which will add 70 to
100 employees, while Johnson Controls is plans will be put into place. United States: 125
expanding their Norton Shores facility and will • Amway will move out of their 685,000 Canada: 38
Latin America: 18
add around 40 jobs. square feet facility in Ada which sits on more
Asia Pacific: 214
than 106 acres of land. However, the EMEA: 117
The West Michigan economy saw its company intends to stay committed to the
area. • $1.6 billion in annual revenue
unemployment rate drop to 7.1%, down more
than 2.0% from a year ago. The state as a whole • Lease rates will trend upwards as the supply • 978.6million square feet under
and demand equilibrium becomes a little management
still trails the national average of 8.5%, however
the Greater Grand Rapids area is now well below clearer. • Over 12,000 professionals
that average. Manufacturing jobs make up • Look for companies to lock in spaces with
roughly 15.3% of the West Michigan workforce, longer term leases than recently seen. Colliers International | West Michigan
and are expected to increase according to the • Some quality buildings will transfer
employment services company, ManpowerGroup. 300 Ottawa Avenue NW, Suite 400
ownership due to increased interest from
The firm’s Employment Outlook Report states Grand Rapids, MI 49503
investors. +1 616 774 3500
that the region should expect strong hiring
• Expect to see the start of some build-to-suit
progress in the area, with manufacturing leading 44 E. 8th Street, Suite 510
and speculation construction as quality space
the way. With four of the top ten employers by Holland, MI 49423
is less and less available.
size in the area being manufacturing companies, +1 616 394 4500
the outlook for industrial growth is promising.
125 S. Kalamazoo Mall, Suite 203
Kalamazoo, MI 49007
+1 269 978 0245
WEST MICHIGAN OFFICE TEAM
Matt Abraham Jason DeWitt John Kuiper SIOR, CCIM Steve Marcusse SIOR, CCIM
RESEARCHER:
Associate Associate | Holland Principal Principal
MOB 616 560 4543 MOB 616 836 2856 MOB 616 901 3500 MOB 616 450 1669 Jeffery Hainer
matt.abraham@colliers.com jason.dewitt@colliers.com john.kuiper@colliers.com steve.marcusse@colliers.com Research Analysis
DIR +1 616 242 0611
jeffery.hainer@colliers.com
Copyright © 2011 Colliers International.
Thomas Postma SIOR David Rapp Duke Suwyn SIOR, CCIM Karen Vandenboss The information contained herein has been obtained from sources
deemed reliable. While every reasonable effort has been made to
Principal | Holland Associate President & CEO Associate | Kalamazoo ensure its accuracy, we cannot guarantee it. No responsibility is
MOB 616 283 2411 MOB 616 325 9235 MOB 616 581 7777 DIR 269 385 5505 assumed for any inaccuracies. Readers are encouraged to consult
their professional advisors prior to acting on any of the material
tom.postma@colliers.com david.rapp@colliers.com duke.suwyn@colliers.com karen.vandenboss@colliers.com contained in this report.
Cheryl Lindgren Paula Nichols Ben Sietsma
Executive Assistant Executive Assistant Sales Associate
DIR 616 988 5818 DIR 616 988 5801 DIR 616 2420674
Accelerating success.
cheryl.lindgren@colliers.com paula.nichols@colliers.com benjamin.sietsema@colliers.com
www.colliers.com/marketname