Industrial Strength

Why demand for industrial properties is growing – and who's buying

GRAND TRAVERSE CO. – Driving around Grand Traverse County, it's hard to miss the dozens of empty industrial buildings for sale. A 61,000 square-foot warehouse on Barlow. The giant, 80,000 square-foot former Lear Manufacturing complex on South Airport Road. Medium-sized and smaller buildings scattered throughout industrial parks and along main roads.

The good news?

"It's going to be one of the first (real estate) markets to come back," says Bob Brick, a Re/Max broker who has worked amidst – and witnessed – many real estate sales cycles over the years.

"A lot of companies downsized since 2007 and got more efficient, and are getting ready to hire back again," he adds.

Brokers and agents like Brick agree that demand for the properties is picking up, in part because the bleeding has stopped.

"Well, there are fewer businesses actually going out of business," says James Schmuckal, a local commercial realtor. "For the last few years, I'd close a sale, and then return to the office only to get a message that another was going on the market."

Who's growing?

The uptick is primarily coming from the following sectors:

– Tool-and-die shops and automotive suppliers that have held on through the recession. Survivors now seek bigger buildings to handle all the orders they're getting.

"I've seen such an increased demand because a lot of companies are saying, 'We will outgrow our facility at any time,'" says David Frost, a partner in commercial real estate brokerage firm Three West. At least 10 companies have expressed such concerns to him. "Some of them are almost in a panic."

Frost is helping a local tooling company move from a 17,000 square-foot building into a 74,000 square-foot space. The company has been getting a major boost from the oil and gas industry. The move will help the firm double its current operation and allow for future growth.

– Green businesses like makers of windmills and solar mirrors or recycling centers. American Waste purchased the former Tower Automotive building on Hughes Drive in Traverse City, a five-acre shell that used to churn out auto parts. Now, it's a vast sorting facility for recyclables.

"It's been really perfect," says Kelly Ignace of American Waste, noting that the building has been large and flexible enough to handle the company's local growth.

– Growing wineries that are looking in town for storage and distribution space miles from their vineyards and tasting rooms. More than 30 winery operations now exist in Grand Traverse and Leelanau Counties, many of which are experiencing explosive growth. But physical space at the vineyard is at a premium and mostly used for growing grapes and hosting visitors.

– Manufacturers and suppliers from out of town. "There are companies looking at Traverse City because they like the skill base," Frost says. "There are a lot of good machinists in Traverse City that got laid off."

Schmuckal said he's working with a client from Grand Rapids who is considering the purchase and retrofit of a Traverse City industrial property.

Limited supply?

"The inquiries are a good sign, but it doesn't mean we're closing on all the sales," Brick says. The trick is finding a suitable building for the interested customer.

Schmuckal helped Charter in a search for a new home, only to realize the area's selection of existing industrial buildings "just wouldn't work for them." So Charter built its own new, 21,000 square-foot building on Hammond Road instead of retrofitting an existing one.

With expansion and interest growing, brokers actually foresee supply eventually running short of demand.

"With industrial property, we don't have a huge supply of that like we do in housing," Brick says.

Mike Stimac, owner of Tradewinds Commercial Properties, calculates how long it will last if things continue as they are now.

"In three years, we're going to be out of properties and have to build something," he says.

That's not all bad, either. As supply dwindles, more construction will indeed follow, brokers say.

Hoping it will last

In the meantime, realtors are just hoping the good news continues.

Brick called the upturn "fragile," partly because of competition among states and communities for manufacturing jobs.

"A lot of people and states are offering a lot of incentives," he says.

Stimac says he'd like to see an organization that would promote industry in the area, like the Downtown Development Authority markets downtown Traverse City to entrepreneurs looking for retail and restaurant space.

"We need a SWAT team in Traverse City that has an annual plan and that goes out to get companies that we want to be here," he says. "We don't have that in the manufacturing world." BN