Unlike other commercial real estate sectors that are struggling to recover from a year of pandemic shutdowns and supply chain disruptions, Detroit’s industrial sector has rebounded strongly. Due to the region’s world-class logistics infrastructure, it was able to provide just-in-time e-commerce-related warehousing and shipping during a period of immense growth in online shopping. While a lack of microchips has left the automobile manufacturing industry momentarily hamstrung, other industries, including food and agriculture, are making up for that difference, generating over $104 billion annually. The slightly elevated vacancy rate of 4.7% is evidence that the economic recovery from Covid is ongoing, but as long as the rate remains below the national average (which it should), the future remains bright in this area. Explore Q2 Industrial Market Report 2021

Q2 Industrial Market Report

Leasing

Last year’s shutdowns in response to Covid led to negative net absorption; however, that situation has reversed in 2021, as demand has increased in line with reopening, and Detroit has experienced a 335% absorption increase from Q4 of 2020 to Q2 industrial market report  of 2021. With prime locations for logistics, distribution, and warehousing due to their proximity to the Detroit airport, critical rail locations, and the Port of Detroit, the Airport District, Southern I-96 Corridor, and Farmington/Farmington Hills areas have all seen significant increases in leases signed during 2021. This growth is expected to continue as deliveries increase.

Renting

Detroit’s rent growth of 6.1% remains high in comparison to other comparable midwestern cities, such as Chicago and Cleveland. Although the flex annual rent growth was -1.3%, the specialized rent growth rate of 8.8% more than makes up the difference. Moreover, logistics rent growth remained strong at 5.8%. At $7.30/SF, the average price of industrial rent in Detroit remains affordable. Higher prices/SF can be found in along interstates 696 and 96 and to the north, while the lowest prices/SF are available in Detroit West, Detroit East, and Downriver North.

Construction

In line with regional growth generally, the largest current construction projects are in logistics (6.2 million SF). These are followed by specialized (670,000 SF) and then flex spaces (150,000 SF). Forty buildings totaling 7.1 million SF comprise the current industrial construction market.

Here are the top submarkets in Detroit for the second quarter:

• Central I-96 Corridor
• Airport District
• Royal Oak
• W of Van Dyke/Macomb
• Auburn Hills

Under Construction Properties

Several of the largest properties currently under construction include the 5-building Wixom Assembly Park and a distribution center at the Oakland Logistics Park, which are both being developed by Flint Development Group out of Kansas City, as well as the Crossroads Distribution Center-North, which is being developed by Ashley Capital.

Here are the 7 largest properties that are, or were, under construction in the second quarter:

• Building 3, 1430 E 10 Mile Rd
• Building A 28801 Wixom Rd
• Oakland Logistics Park 2100 S Opdyke Rd
• Building 6, 42000 Ecorse Rd.
• Building 1, 17991 Wahrman Rd
• 1811 S Range Rd
• Building 2, 7080 23 Mile Rd

Sales

Although investment activity remains subdued, the average transaction sale prices/SF of $64.39 is easily outpacing last year’s average of $48.10d/SF. Specialized industrial spaces saw the most money changing hands with $69.9 million in just 25 sales, while logistics spaces had 3 times as many deals (79) for a total of $39.9 million. Private sales transactions balanced between these two extremes with 40 sales for a total of $50 million. The larges sale was W.P. Carey’s purchase of a 2-property triple net lease portfolio for $53 million.

Economy

After the bottom fell out of employment at the beginning of last year, unemployment has remained a major problem in Michigan. Generally and, more specifically, in Detroit, where the unemployment rate is currently 9.1% (compared to the national average of 6.2%).

White collar employment seems to be rebounding more rapidly than leisure and tourism, although increased vaccination rates and limited lockdowns should help those sectors continue to recover throughout the rest of the year. Even as unemployment remains high, though, many businesses (approximately 45% of small businesses) are reporting worker shortages, which is impacting their ability to grow and contribute to the region’s economic recovery.

Manufacturing, one of the state’s top three industries, continues to report limited growth, but global supply chain issues may have a negative impact on automobile manufacturing growth in the short term. Specifically, the lack of microchips has left thousands of lots of unfinished vehicles. In response to this problem, Ford Motor Company has announced that dealers will be receiving limited inventory this summer (1/3 to 1/2 of their expected allocation). Nevertheless, Fiat Chrysler Automobiles’ new Detroit Assembly Complex and the new Jefferson North Assembly Plant plan to add approximately 5,000 new jobs in the coming months.

This is a summarized version of an office market report that was originally created by CoStar. The full report can be https://www.compass-commercial.com/industrial-real-estate-reports/.