Signature Associates

Livingston County still waiting on commercial building boom that never came

Jon Savoy took data projections in the mid-’90s to heart when he moved his real estate business, Lee & Associates, to Brighton. He was betting on population growth that came, to an extent, but the commercial building wave that he expected to follow never actually materialized.

He has since moved back to Southfield.

Around many stretches of Southeast Michigan freeways, the speculative industrial, warehouse and distribution center building market is gobbling up key chunks of real estate as e-commerce and other uses continue to require more space. More than 7.5 million square feet is under construction in the region to accommodate the need.

But not in Livingston County. That area has been a comparative dead zone for such construction.

Nestled between Oakland and Ingham counties, Livingston appears to have the perfect storm for new construction: Very low vacancy (3 percent or so), outdated inventory and rising rents, north of $6 per square foot for several quarters in a row.

So what gives?

In the last four years, there has been just one new 40,000-square-foot industrial building constructed in the county’s 585 square miles. Nothing else is currently being built, according to historical data from the local office of New York City-based brokerage firm Newmark Knight Frank.

“It’s just a little far out there,” said Dan Labes, an industrial real estate expert who is executive managing director locally for Newmark Knight Frank. “Doesn’t have the employee nor customer base. Few demand generators such as assembly plants. The reasons are numerous.”

Oakland County, by contrast, has had more than 2 million square feet under construction each quarter for the last two years, and at one point — the third quarter of 2019 — had more than 3 million square feet across 17 different buildings underway.

In the second and third quarters of 2019, Wayne County had 544,000 and 664,000 square feet under construction, respectively, but hasn’t had less than 1 million square feet with shovels in the ground at any other time in the last five years, Newmark Knight Frank data says.

According to the data, Livingston County has approximately 13.5 million square feet of industrial space across 374 buildings with an average asking rent of $6.47 per square foot per year. The vacancy rate is just 3.4 percent, effectively making the market full.

That hasn’t translated into tangible building activity for Savoy and others, however.

“We have 200 acres in the middle of the county at Latson Road that we just got utilities to two weeks ago,” Savoy said of property he has with Royal Oak-based Versa Real Estate. “We are getting a lot of distribution-style developers calling, but nobody has stepped up to the plate. It’s like, ‘Gee, Amazon has to be out here sooner or later.’ Those are the thoughts.”

It’s not just that the populations of the counties are wildly different, experts said, with Livingston’s roughly 194,000 people coming in at about one-sixth the size of Oakland County’s 1.26 million and one-ninth of Wayne County’s 1.75 million. Livingston’s population has grown dramatically from some 115,600 in 1990 to 157,000 in 2000, then jumping to 181,000 in 2010, according to data from the Southeast Michigan Council of Governments.

Issues ranging from available workforce to available infrastructure are all other factors in new industrial space not coming to the county, even though industry experts said the existing stock is largely outdated and owner-occupied.

In the meantime, much of the inventory is owned by the businesses that occupy them — not by multinational e-commerce behemoths, tier-one auto suppliers or the like.

“A lot of privately owned businesses that own their building and those tend to trade less than the big leased warehouse and distribution sites,” said Philip Sprague, vice president of advisory and transactions services focusing in industrial and logistics real estate for the Southfield office of Los Angeles-based CBRE Inc. “Typically if people are out in Livingston County, I would say three out of four, or more, are there because they own the business and they live there … When they own the building, they want to be there as long as humanly possible.”

“If you’re a last-mile distributor, you’re not gonna locate there because the population density is not there. If you’re looking for heavy labor, there is labor obviously, but if you’re looking for it to be condensed labor, it’s just not there,” Sprague said.

In addition, utility services such as power, water and sewer may not be readily available at some sites throughout the county, causing delays in development.

“The hotspot is Brighton because it has sewer and water, but I don’t know there is a site available in the whole city of Brighton that’s zoned industrial,” Savoy said.
Construction costs have also hampered new building, Savoy said.

“If somebody gave me the land and said, ‘Here, it’s free,’ you still wouldn’t do it because the cost of the roads would have exceeded what you would have gotten for the land once the roads were in,” Savoy said.

Kevin Hegg, a vice president in the Canton Township office of New York City-based industrial, warehouse and distribution center developer Ashley Capital, said two of the main drivers for a lot of the new building in Wayne, Oakland and Macomb counties are “ZIP code related” for e-commerce and distribution or “drawing a ring around a 15-minute drive time around any plant.”

At some point, Hegg said, those will line up in Livingston County’s favor.

“As population and infrastructure grows, availability of labor grows,” he said. “It’ll get there but it will likely take some time.”

Posted By: Crain’s Detroit Business on November 14, 2021.  For more information, please click here to read the source article.

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