Industrial Commercial Real Estate Perspective
4/19/2010
As the U.S. auto industry undergoes a major transformation, and the nation’s economy follows suit, a foregone consequence is that the need for manufacturing facilities would taper along with production. Considering that five years ago, a significant percent of Michigan’s industrial business was automotive-related compared with today, one could also conclude that there is a wealth of industrial space with no one to fill it.
Further evidence of this gap between space and need is addressed in The Society of Industrial and Office Realtors’ latest Commercial Real Estate Outlook, which points out that merely because less industrial sublease space is on the market (than other real estate categories), doesn’t mean there is a proportionate number of tenants to stake a claim. According to the report, national vacancy rates will likely rise from 13.9 percent in the fourth quarter of 2009 to 14.9 percent in the closing quarter of 2010.
While the numbers tell one story, the continued opportunity for diversification in the industrial space, particularly in Michigan, tells another. Economic challenges to the automotive manufacturing industry have crossed paths with up-and-coming technologies to create a perfect storm of opportunity, with the emergence of the U.S. green movement breathing life into dormant manufacturing properties. Technologies both specific to the “greening” of automotive, like hybrid electric vehicles and batteries, as well as more universally beneficial, like clean energy innovations, have and will continue to fill the space pure automotive manufacturing has left behind. Fueling the segment’s diversification, among many drivers, is late 2009’s $2.4 billion in federal grants to develop next-generation electric vehicles and batteries, of which Michigan was the majority recipient.
The intersection of engineering and manufacturing talent with government incentives to establish innovative businesses within the state of Michigan is yet another perfect storm. A prime example of this in action is southeast Michigan’s welcome mat to General Electric’s Advanced Manufacturing and Software Technology Center. Chief among factors leading GE to establish its facility in Michigan was the state’s “world-class engineering, technical talent and public officials who understand that investing now will create tomorrow’s leading positions in information technology, clean energy and transportation.”
Economic circumstances have catalyzed an unprecedented shift in the industrial segment’s demography and how its manufacturing facilities are being utilized by the state’s most rapidly growing industries, including defense. With the industry’s current makeover, we will see outdated or outmoded properties fall off the real estate landscape. However, a movement toward finding new purpose in these facilities to innovate leading technologies and environmental solutions is an energizing prospect.
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