The West Michigan industrial market enjoyed another strong three months during the third quarter of the year. But JLL warns that a slowdown in the development of new industrial facilities might be on the way as interest rates and construction costs continue to rise.
According to JLL’s third quarter Industrial Insight report, the West Michigan’s industrial market saw a low vacancy rate of 3.2% in the third quarter. The market also saw more than 3.29 million square feet of positive absorption during the quarter.
JLL reported that direct asking rents for industrial properties in West Michigan rose to an average of $4.39 a square foot during the third quarter.
And in a major deal, Gotion Inc. is rumored to be planning a $2.4 billion factory near Big Rapids, Michigan, another large-scale automotive investment that JLL says will have a ripple effect for the market in the coming years.
Honda also announced its commitment to a $4.4 billion investment in the state in a joint venture with LG.
There are concerns, though, over rising interest rates and construction costs. JLL says that the new-construction pipeline of industrial space has been reduced to 1.3 million square feet currently under construction. This is 2 million square feet below where the West Michigan market stood at this point last year.
JLL says that speculative industrial construction might begin to taper off because of increasing costs and a decrease in available land ready for development. Rising interest rates are also having a negative effect on financing for speculative projects, something that is putting some developers on the sidelines, JLL said.
“While industrial speculative development continues for the next few months, activity is looking to start to level off based on a couple of factors, including lack of available sites with infrastructure and the costs of money to finance these projects,” said JLL executive vice president Bob Horn. “Several major national financial institutions in June suspended most lending on speculative and development projects. Despite this, we’ve seen 1.2 million square feet of new deliveries year-to-date, and 1.3 million square feet of space is currently under construction.”
