According to at least one expert analyst, the demand for warehouse space in the Detroit metro area is poised to grow. That’s contrary to the current direction of the economy.
“I take an optimistic view,” says Dan Labes, senior vice president of the Industrial Division at Detroit’s Grubb & Ellis Co. “I believe that because of increasing cost of transportation and fuel the demand for warehouse space may actually increase to get the product closer to the customer.”
Smart Business talked to Labes about finding the proper warehouse property.
What is the current availability of warehousing facilities here?
There are approximately 20 million square feet of Class A distribution space in the Detroit metro area. Class A is defined as newer properties with a 30-foot or greater ceiling height, multiple dock doors approximately one per 5,000 square feet and high-density (ESFR) sprinklers to allow users to rack the full height.
Some users require Class A space, but then some tenants with razor-thin margins want Class B space, of which about 30 million to 50 million square feet exists. These are older buildings with ceiling heights of 18 feet to 24 feet and one dock door per 10,000 to 20,000 square feet. Many of these buildings do not have updated, efficient lighting and heating, but they’re still very functional for warehouse space.
Most of the available warehouse facilities are located in western and southern Wayne County. Land there is less expensive, close to the airport, close to the rail and close to the interstates that link Michigan to Ohio, Indiana and Illinois.
When selecting warehouse facilities, what are some factors that might positively or negatively affect a potential deal?
Location and price always apply.
Even though some tenants need Class A space and are willing to pay for it, the Class B buildings that deliver the cheapest rates are usually the first to go.
Some tenants have a requirement for trailer storage, so buildings that can provide on-site trailer parking seem to fare better. Other nice features are heating/ cooling systems with climate controls, good lighting and upgraded sprinklers. State-of-the-art lighting and insulation in a building’s walls and roof also are in demand because of increased energy costs. Dock doors on newer buildings have grown from being 8-by-8 feet in older buildings to 10-by-10 feet in newer buildings. Truck courts with more maneuvering area are now more popular because trucks have gotten longer over the past 15 years.
Other factors that can impact a deal include:
- percentage of office space
- column spacing
- flex space
- floor loading specifications
Though markets like Kansas City, St. Louis and Chicago are serviced by rail, the number of transactions here that rely on rail are few and far between. Of all the ‘spec’ buildings that have been constructed here in the last 10 years, none of them are rail-served and that’s more than 10 million square feet of Class A space. Rail use in the future might increase with the increased costs of transportation and fuel but that remains to be seen.
About how many facilities does a company review before making a final decision?
Three to six, typically, and it can take up to two years to finalize a lease. Six to 12 months is the average.
Many, many transactions are contracted-related. In those instances, the broker is dealing with logistics companies that must first negotiate purchase orders with their customers. If that third party loses a contract, it no longer needs the warehouse space. In one instance, it took 18 months for two companies to finalize a contract.
In general, a company should allow anywhere from four to 12 weeks to identify a new facility, negotiate business points and legal terms and move in. Of course, this schedule is highly dependent on the specific search being conducted and can vary based on any of the following: availability of product in the market, scope and duration of work to be completed by the owner or tenant, complexity of the requirement and size of the company performing the search.
A good rule of thumb is to start earlier rather than later.
In what areas can a potential tenant seek negotiating leverage before signing a lease for a warehouse?
Everything’s negotiable. Important negotiating factors include the creditworthiness of the prospective tenant, length of lease, special improvements that must be made, expansion rights and even an early termination option.
DAN LABES is senior vice president of the Industrial Division at Grubb & Ellis Co. and member of its Global Logistics Group. Reach him at (248) 357-6578 or email@example.com.