How strong is the industrial market today in Detroit? Look at this market’s vacancy rate. Ashley Capital reported that in the fourth quarter of 2019, the industrial vacancy rate here had dropped all the way to 3.6 percent. That’s an impressive figure, and it’s far from the only one associated with Detroit’s industrial sector.
Ashley Capital reported, too, that industrial rents in the Detroit area had risen 3.2 percent in the fourth quarter of 2019 when compared to the same quarter one year earlier. Developers have been busy in the Detroit market, too, with Ashley Capital reporting that they delivered 3.5 million square feet of industrial space during 2019.
These numbers aren’t surprising to Kevin Hegg, vice president at Ashley Capital. He’s seen how strong Detroit’s commercial real estate market has performed overall. And when an area’s entire commercial real estate market is strong? You can bet its industrial market is thriving, too.
Why is Detroit’s industrial market as strong as it is? Hegg points to both local and national factors.
First, the U.S. economy is strong today. That is having an impact in Detroit.
“The old adage is true: All boats rise with the tide,” Hegg said. “Detroit is benefitting from a strong overall U.S. economy. The national economy is giving everyone more confidence. Companies are more willing to expand, reinvest and make longer-term commitments.”
And in Detroit itself? The area is benefitting from some major investments from automakers.
Fiat Chrysler is spending $4.5 billion to build the first new auto assembly plant in Detroit in nearly 30 years. This will bring about 6,500 jobs to Detroit.
General Motors is making a positive impact in Detroit, too. The company said that it is investing $2.2 billion into a Detroit plant for the production of electric trucks and sport utility vehicles.
“These are very important announcements for the city, obviously,” Hegg said. “The impact of these investments will spill over into the other manufacturers in the area. All of the suppliers will benefit. These companies will go into growth mode, too.”
Finally, there’s the impact of ecommerce. Companies today need to ship products quickly across the country. They need warehouses and distribution centers, then, across the Midwest. This has benefitted Detroit’s industrial market, too.
“Amazon has had a big impact, directly or indirectly, by creating these large facilities,” Hegg said. “But we see other retailers, too, offering that same type of delivery system or service. They are starting to enter the market. We are seeing a tick up in the percentage of retailers that we normally would have seen looking for distribution facilities.”
Hegg said that Detroit’s skilled workforce is a significant positive for companies looking to locate in the area.
“At the end of the day, auto still drives this town,” Hegg said. “As a result, that does bring in a skilled workforce. We have seen the shift from traditional vehicles to electric. That has brought in a tech element, too, which has helped us attract that sector of the labor force.”
The last decade has been an important one for the city of Detroit. Hegg said that the slow, but steady, rebound in the city’s fortunes has made it a more attractive destination for younger workers. Detroit is now better equipped to retain the home-grown talent that is created in colleges such as the University of Michigan and Michigan State University.
“The revitalization of downtown and the entire city has helped immensely. And the shift from fossil fuels to electric is bringing in a different type of worker,” Hegg said. “It is helping to drive the things that are going on in the downtown.”
Michigan remains a good place, too, to raise a family, something that is attractive to workers, Hegg said. And now that developers have returned to downtown Detroit, more of these workers are again considering the Motor City.
Hegg tells this story to illustrate the changes that have hit Detroit’s downtown. About 20 years ago, Hegg had relatives in from Atlanta. As part of their stay, they ate dinner at the Detroit Athletic Club in downtown. The dinner was great and the Athletic Club was beautiful. But the rest of downtown? It needed help.
Hegg’s relatives were surprised at what they saw, all those empty buildings and quiet streets.
Today? Much of downtown has sprung back to life, thanks largely to the efforts of locals who are committed to seeing Detroit’s rebirth.
“The investment we’ve already had is acting as a magnet,” Hegg said. “It has been incredible to see. There’s a greater confidence here today.”