Are you looking for industrial real estate in Michigan? You’re not alone. Over the last few years, the region has experienced growing demand for warehouse and manufacturing space, creating an industrial commercial real estate shortage. If your business is ready to grow, you may wonder if you should wait for a shift in the market, build your own space, or turn to alternatives.
The answer depends on several factors, including your tolerance for real estate market fluctuations. Whether you’re hoping for a market swing, on the lookout for commercial properties, or looking for alternative solutions, it’s important to understand what’s behind the commercial real estate shortage in Michigan, the compounding factors, and future supply risk.
A Focus on Southeast Michigan
A closer look at Southeast Michigan’s commercial market reveals some of the factors impacting the availability of industrial space. With a population of 4.8 million, the Southeast Michigan area is experiencing real estate trends at a large scale, but the patterns can be seen elsewhere in Michigan, as well.
In the Metro Detroit area, office vacancies remain at a seven-year high. Like urban centers around the country, Metro Detroit is feeling the long-term impact of a workplace shift that began during the pandemic. Even as the lockdown lifted, employees were slow to return to office workspaces, preferring to work from home instead. As a result, many business owners have considered downsizing the footprint of their office spaces.
Industrial real estate in Southeast Michigan, on the other hand, is experiencing the opposite issue. According to the Detroit Regional Chamber, the city of Detroit is experiencing an industrial boom. Several key industries have chosen the Detroit area to build or expand their capacity, including automotive manufacturing, especially through the industry’s transition to electric vehicles, and e-commerce supply and warehousing.
This growth has increased demand for industrial space in the whole Southeast Michigan area and created an “industrial hub effect”, through which businesses are drawn to a region that supports industry, has a sound infrastructure, and a local network of suppliers and like-minded support.
As a result of this growth, Southeast Michigan is experiencing a significant industrial commercial real estate shortage. This leaves local businesses in a pinch. If they need industrial space for warehousing, production, or growth, there are few options available. In the first quarter of 2024, Metro Detroit’s industrial vacancy rate was a mere 3.6%, according to an industrial market report by Avison Young.
While Southeast Michigan offers a clear picture of the difference between the office vacancy rates versus the industrial commercial real estate shortage, the same patterns persist throughout Michigan. Let’s look at a few of the reasons why.
Pandemic Legacies
The pandemic reshaped many elements of our lives, including the way businesses plan and grow. Michigan has experienced growing demand for both manufacturing and warehouse space in recent years, driven by growth in specific industries, as well as factors related to pandemic legacies.
The pain of supply chain issues during the pandemic drove many businesses to redesign their business plans. Rather than order just-in-time parts, many businesses began ordering ahead and then storing excess parts for future projects. Having goods on hand allows a business to reduce transit time and improve efficiencies. This shift has contributed to a commercial real estate shortage throughout Michigan.
The growth of e-commerce has also had a hand in the industrial commercial real estate shortage. While the lockdowns of 2020 forced many businesses to provide online options for consumers, the global rate of e-commerce has continued to climb. According to the U.S. government’s International Trade Association, the percentage of global retail sales that were made online has climbed from 18% in 2020 to 21.8% in 2024.
This trend means more businesses need to have inventory nearby, ready to be picked, packed, and shipped efficiently. This shift is made even more dramatic by Amazon, which recently expanded its presence in Michigan.
Current Inventory
To attract and support large-scale economic growth, Michigan offers broad tax incentives. As large-scale industries like automotive, e-commerce, and cannabis expand, smaller businesses need to find space amidst an industrial commercial real estate shortage.
But compounding the lack of space is the state of what’s currently available. Naturally, when there is any real estate shortage, the remaining supply is often less than ideal. Many of the industrial properties available to rent or buy in Michigan are older and/or compromised.
If a business is unable to find suitable space for manufacturing, storage, and/or distribution, it’s no wonder it goes looking for alternative solutions. One option is to use the help of a third-party logistics provider, which can offer scalable warehousing and expertise in areas such as logistics, fulfillment, supply chain management, and transportation.
The downside of using a third-party provider, of course, is the added expense. For a small business with no manufacturing, limited warehouse requirements, and little experience with logistics and inventory control, a third-party provider can make sense. For a business that wants more control in the process without the expense of the middleman, it makes sense to manage the current industrial commercial real estate shortage by turning to construction.
When it Makes Sense to Build
Although the timelines can be long, and capital expense is required, there are many scenarios where it may make more sense for a business to build its own manufacturing or warehouse space, rather than wait for a shift in the industrial commercial real estate shortage.
Building from the ground up allows you to build to your specific needs, allowing room to grow, as well. Ultimately, a custom building will improve efficiencies for almost any business, allowing you to move, create, and store products in a way that reduces transit and handling time.
A new build also allows you to be strategic with location. Of course, you’ll need a property that will have roads and utilities available, as well as easy access to highways. With these elements in mind, a new property can allow you to build closer to suppliers or business partners, reducing travel time and improving efficiencies.
Whether you search for an ideal industrial space or decide to build your own, your business will need to think strategically to get around the industrial commercial real estate shortage in Michigan.
Find the Right Team
It’s easy to see why Michigan appeals to business owners and decision-makers. It is strategically located, with easy proximity to suppliers and major markets. It has a skilled workforce and tax incentives that help to make it a hub for manufacturing and distribution.
If you decide to build, to overcome the industrial commercial real estate shortage in Michigan, be sure to find an experienced team for the job. It’s important to find a partner who has experience in the industrial sector, with expertise in the design, installation, and maintenance of structural and mechanical components that go into a successful industrial project.
At J.B. Donaldson, we are a premium design-build contractor with over 25 years of experience in a wide range of industries. With extensive in-house expertise, we collaborate with our clients, helping you navigate every aspect of your project, starting with the pre-construction process. We focus on creating industrial facilities that are fully functional and designed with productivity and growth in mind.
We value quality, consistency, and predictability – allowing you to count on schedules, costs, and project integrity. Our commitment to excellence allows us to provide creative designs, practical solutions, and innovative ideas while keeping your goals and objectives as top priorities.
