The industrial market in Detroit finished 2021 strong. With the 8th largest industrial inventory of any city in the US and e-commerce-related companies joining manufacturing giants in expanding their footprint in the area, conditions remain favorable for landlords. Closing out the year with 9.4% year-over-year rent growth, surpassing its 5-year average, the city is poised to remain a leader in this sector. The most expansive growth continues to be focused along the Central I- 96 Corridor, particularly within Novi and Wixom, as interstates 275 and 96/696 intersect these areas and there’s still plenty of space for development.

Q4 Industrial Market Report

Leasing

Detroit’s industrial leasing market has been near capacity since 2015, and that doesn’t appear to be changing any time soon. The long-term vacancies that do exist are largely a result of a significant number of owner-occupied manufacturing plants. As logistics leasing increases so does the demand for new state-of-the-art facilities with robotic and automated systems. One of the city’s strengths that continues to support growth in this area is its dispersed pattern of development. The area with the largest industrial inventory, the West of Van Dyke/Macomb submarket only comprises 10% of the total, and the greatest activity in 2021 actually occurred in the Airport District, which is the second-largest submarket.

Renting

The industrial market is far and away Detroit’s strongest rental market, with annual growth averaging 6.2% and topping 9.4% in 2021. This growth is expected to slow slightly due to tight vacancy rates and a delay in new deliveries catching up with demand. Nevertheless, the future looks bright for landlords as vacancies are predicated to remain at record lows through at least 2023. Logistics properties built in 2015 or more recently are asking $7.11/SF, while 1970s and 80s industrial properties are averaging $6.29/SF.

Construction

While construction in Detroit remains slower than other Midwest markets like Chicago and Indianapolis, it has increased since the start of the pandemic, and what is built does not stay vacant for long. Indeed, all of the 11 manufacturing facilities that have been built in largest manufacturing area (north of the metro) since 2015 are fully occupied, and there’s only one unleased manufacturing project underway in that area. The less developed area to the west of the metro and the Airport District hold the most promise for future development, as they offer convenient access to major distribution channels.

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

1. Airport District
2. West of Van Dyke/Macomb
3. Auburn Hills, Pontiac & Rochester
4. Central I-96 Corridor
5. Detroit West

Under Construction Properties

As of the end of 2021, there were 9.5 million SF under construction in metro Detroit, representing about 1.6% of total inventory. Most new manufacturing construction is concentrated north of the metro area in submarkets of Groesbeck North, West of Van Dyke/Macomb, and Auburn Hills, Pontiac, & Rochester, while logistics developments seem to be adjacent to the intersections of major interstates and near the airport.

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

1. Building A, 10160 Assembly Park Dr
2. Oakland Logistics Park, 2100 S Opdyke Rd
3. Building 6, 42060 Ecorse Rd
4. 1030 Featherstone St
5. Canton Business Park, 48620-48626 Michigan Ave
6. 13751 Hamilton Ave
7. New Construction, 12601 Southfield Fwy

Sales

Unlike a lot of other metropolitan areas, Detroit’s increased demand for leasable industrial space hasn’t resulted in major sale volume increase. Nevertheless, prices have improved from last year’s low of $58/SF to an average of $65/SF by the end of Q4 2021. Detroit’s cap rates of 8.8% attract investors looking for higher yield investments, and much of the city’s sales volume can be attributed to national investors.

Economy

Like most of the developed world, Detroit experienced an economic downturn, including its worst unemployment rate in the last half century (22.7%), as a result of the coronavirus pandemic. Federal stimulus packages and Michigan’s stated economic reopening, the MI Safe Start Plan, have helped the city begin to recover.

As vaccination rates improved and restrictions were rescinded, more people were able to return to work and new jobs have been added. The year-over-year job growth rate for Detroit was 8.6%, which is well ahead of the national rate of 5.8%.

The industrial workforce represents 19% of Michigan’s total workforce, and they have struggled to recover more than office (Michigan’s largest labor contingent at 29%) and healthcare (13%) due to the impact of pandemic side effects, such as such logistical problem, supply-chain issues, and raw material shortages. Nevertheless, Ford is completing a 30-acre Mobility Innovation District known as the Corktown Campus west of Downtown Detroit. This development will offer a centralized location for startups, innovators, and entrepreneurs to create, experiment, and launch innovative mobility solutions on real-world streets and will create total of 5,000 new jobs—2,500 from Ford and 2,500 from business partners. Moreover, 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/.