For years, demand for industrial space has outstripped supply in West Michigan, but commercial real estate experts and developers expect the situation to improve as building rates rise. interest increase.

The big question among many local brokers: how negatively will the national economy affect demand over the next two quarters?

“National trends certainly point to some of the slowdown, but the pace of expansion is so crazy and fast that it’s probably healthy that the market is a little more balanced,” said Steven Marcusse, director and senior vice president. . at Advantage Commercial Real Estate Services LLC which focuses on industrial properties.

With increased demand for industrial space, Marcusse expects the local market to remain strong.

“We are still seeing off-market sales and there are still a few different projects under construction or planned for next spring,” he said. “All activities are still going well.”

The total vacancy rate for industrial spaces was 3% in western Michigan and 0.7% in northeast Grand Rapids for the second quarter of 2022, according to an industry analysis report from the company. brokerage JLL inc. Occupancy gains in the first half of the year reached 2.6 million square feet, with more than 1.8 million square feet of net uptake recorded in the second quarter alone, according to the report.

“The construction market is in a transition that is expected to accelerate in the months ahead,” Ken Simonson, chief economist at Associated General Contractors of America, said in a recent statement. “Sharp interest rate hikes have crushed demand for single-family housing and threaten developer-funded projects, while recently enacted federal legislation will soon boost investment in power, manufacturing and infrastructure construction. But a recovery in these segments will require improvements in timely project approvals and an adequate supply of workers and materials.

Based in Grand Rapids Pioneer Construction Inc. is currently working on several industrial projects at various stages of development.

“We’re busy and have a good backlog, so we’re optimistic, but rising costs are forcing some customers to revise their projects,” said Chris Beckering, executive vice president of Pioneer Construction. “We haven’t had outright cancellations, but we have had projects that have been delayed.”

The company had to get creative to get around the hurdles of long delivery times and high construction costs.

“Materials can take a year or more from order to delivery,” Beckering said. “It takes longer than it takes to build a complete project.”

Delivery times are decreasing for some materials, but still high for pre-fabricated metal and steel, he added, noting that the longest lead time is for electrical service panels, which could take up to two years. for the delivery. Pioneer ordered electrical equipment early in the projects, although construction can still start without it, which is not the case for items such as pre-engineered steel components.

“There is no silver bullet, but we are engaging earlier to anticipate potential projects and have changed the way we present offers,” Beckering said. “Rather than waiting for the whole project to be ready to tender, we break it down into pieces. We are also working more with our suppliers, leveraging buying power and soliciting favors. »

Lack of developable land

Regional Economic Development Cabinet The Good Place Inc. plans to “attack” the low vacancy rate for industrial space by working with construction and development partners, as well as the Michigan Economic Development Corp., to identify potential sites for future development opportunities.

“When you combine rising construction costs with supply chain issues for these building materials and a severe lack of available sites to build on, you have a problem,” said Tim Mroz, senior vice president of the community development at The Right Place.

Finding 50 to 100 acre sites in metropolitan areas is becoming difficult and forcing companies to look to more rural communities, which also adds the hurdle of creating extensions for utilities like water, sewers and electricity, Mroz said. He described the lack of water supply and sewage infrastructure as a “critical challenge” for industrial projects.

“The current model is that if a developer wants water and sewer to be extended to the site, it’s the developer’s responsibility to bear that cost,” Mroz said. “There are different models that allow developers to be reimbursed as future extensions of this line appear, but that’s a long-term return on investment that isn’t attractive to most developers.”

In western Michigan, municipalities in the Battle Creek and Big Rapids areas have set aside properties for large-scale industrial projects. Global battery maker Gotion Inc. is considering Mecosta County to develop a nearly $4 billion manufacturing facility that could create more than 4,000 jobs in the area.

Local officials have worked over the past two decades to lay the groundwork for large-scale development in the vacant Mecosta County Industrial Park. Additionally, the Fort Custer Industrial Park in Battle Creek has attracted a lot of interest and investment.

“Our industrial park has been successful over the decades, but we’re starting to attract more and more realtors and people who haven’t traditionally explored the Battle Creek market,” said President and CEO. Battle Creek Unlimited executive Joe Sobieralski noting that Fort Custer has approximately 300-400 acres of property remaining, although not all of them are contiguous. “The (plot) size and labor are limiting factors, but people know we have utilities.”

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