Understanding the Risks and Rewards in Our Local Marketplace
Industrial properties have been a favorite of CRE investors for more than a decade. In general, they tend to be low-maintenance and yield stable and consistent rental income. But, if you’re looking to dive into the world of industrial real estate, there are a few sector-specific challenges to keep in mind.
Jeffrey Branch, Commercial Advisor of NAI Mid Michigan, has more than 20 years of experience in the facilities sector. He sat down with us to share some of his perspectives on how the industrial real estate scene in Greater Lansing has changed over the past decade.
Industrial Real Estate’s Biggest Strengths
From a CRE investment standpoint, industrial properties offer several advantages. While industrial properties typically aren’t as flashy or attractive as retail storefronts or apartment complexes, the businesses that occupy industrial spaces are essential for local economies.
“Most of your industrial tenants are going to be setting up for the long haul,” says Jeffrey Branch. “They are not the type of companies that will move around a lot.”
Most industrial real estate leases are triple net, meaning the tenant takes on most of the property’s operating expenses (utilities, taxes, insurance, and maintenance). From an investor’s perspective, this means higher returns from rent payments with fewer headaches since the tenant will manage those fluctuating monthly payments.
“In many ways, industrial real estate can end up being a hassle-free investment,” Branch says.
Industrial Property Supply Challenges in Lansing and Beyond
The US industrial sector saw a rapid increase in demand over the past 10 years due to a dwindling supply of viable properties. As eCommerce and other industries saw booms, local supplies of industrial space couldn’t keep up. For many industrial tenants, inflation and high interest rates made the cost of building new facilities prohibitive. In addition, the design of many older facilities can be a challenge for modern buyers searching for high ceilings, wide column spacing, and open, accessible layouts.
The Greater Lansing industrial sector experienced challenges that mirrored national trends. Branch and his colleagues witnessed these trends amplify in 2019 when Michigan legalized recreational marijuana.
“A lot of cannabis providers came into Lansing around then and purchased vacant industrial properties for premium dollars, which shrunk the inventory,” Branch said.
Industrial tenants across the business spectrum partner with NAI Mid-Michigan to find their properties – from local small manufacturers to large-scale corporations. Low industrial vacancy rates have presented real challenges to Branch and his team as they try to place these buyers across the city.
“There still is an extremely low number of desirable properties, and that can make it challenging to find spaces for users,” Branch said. “Because of that, prices certainly are at historic highs for the industrial sector here locally.”
While the local cannabis market saw rapid expansion beginning in 2019, it is now saturated, and experts expect a slowdown in the coming months and years.
“It’s likely that some of these cannabis companies are going to start selling properties or merging with other providers,” Branch said. “So we’re anticipating some additional vacancies in the region, which will likely bring the overall prices down.”
This anticipated cooldown in the Greater Lansing area is also expected to occur in the nationwide industrial sector as overall supply and demand come into greater balance post-pandemic.
Facing Environmental Challenges
Like many cities across Michigan and the Midwest, Lansing has a rich automotive and manufacturing legacy. While this history contributes to the strong business atmosphere of the city, it presents some challenges for modern buyers. These properties occasionally experience ground pollution from previous industrial use, making them unusable for future tenants. Thanks to the US Environmental Protection Agency’s (EPA) Brownfield Program (and their state partners), it’s possible to receive financial support to clean up these sites and mitigate the impacts of pollution.
“Just because a property is dirty doesn’t mean you can’t buy it and get it cleaned up,” Branch said. “The key is hiring a good environmental company that can help you mitigate the contamination and make the property viable. There are a lot of benefits in reusing sites as opposed to building new ones.”
Funding is available for contaminated industrial properties in Michigan. If you contact our NAI Mid-Michigan Team, we can help you set up an environmental assessment with the Department of Environment, Great Lakes, and Energy, and identify a trusted environmental clean-up company.
The NAI Difference
As you consider your next steps into the world of industrial real estate, you can rest easy knowing that the NAI Mid-Michigan team is here to help. Our team has decades of experience helping our clients achieve success, from local small businesses to large corporations.
“Being a part of the NAI network gives us strength in marketing and networking, which supports our team’s understanding of the local landscape and marketplace,” Branch says. “We can use the NAI global network to support regional businesses and bridge the gap for nationwide clients establishing properties in Lansing.”
Call us today to learn more and connect with our team.
