Detroit Gets in Gear As Tech Drives Auto Sector
- Apr 02, 2019
The Detroit area is still a dense cluster of suppliers, engineers and assets, which makes the region well-positioned to capitalize on the past century of automotive manufacturing and sustain the new mobility industry. In line with the nation’s growing industrial market, Detroit is seeing increased demand for warehouse and distribution buildings, with automotive companies among its biggest tenants. Ford Motor Co. signed one of the largest leases in the metro last year—276,000 square feet in Van Buren Township, according to a recent Colliers International report. On the whole, the metro’s economy is diversifying, but the auto industry remains its backbone.
Considering the transformations in the business, Colliers formed a team of experts dedicated to the needs of operators in the segment. The Global Automotive Desk focuses on identifying specific solutions for domestic and international automotive clients, and is led by Patrich Jett, senior vice president for Colliers. Jett, who is based in Detroit, explains why the metro will continue to be a leading market in the mobility segment.
What are the automotive industry’s specific needs when it comes to industrial spaces?
Jett: Automotive companies are investing heavily in project due diligence before starting the site selection process to better understand labor availability and cost, supply chain and transportation models, and other regional and geopolitical risk factors. Although many Tier I suppliers are often contractually restricted to service assembly plants within a 20- to 50-mile region, we are seeing this impacted by labor constraints and suppliers going to Just In Time (JIT) distribution where much of the product is produced in other markets, e.g. China, Mexico etc.
Name a few trends in Detroit’s automotive sector in the broader context of the metro’s industrial market.
Jett: Greater Detroit has very low vacancy rates and some of the highest industrial rental rates in the country—partially caused by lack of spec development and infill sites. So many clients need to be educated on how much activity there really is in Detroit, how much recovery has actually occurred including the CBD/Urban Core, but many clients still believe that Detroit has an abundance of product so they end up needing new construction, which can take 18 to 24 months to deliver. Detroit is a top 20 industrial market, but that is not the national or global perception or image clients have when they come into market.
Tell us about the specific needs of automotive tenants in Detroit. What type of spaces are they looking for? What submarkets are most sought after and why?
Jett: Automotive clients want to attract and retain talent. Specifically, Detroit has the most experienced pool of engineering talent anywhere in the country. To accomplish this, automotive companies need to understand where this employee base lives and have facilities that attract this talent to foster collaboration and innovation. Most are accomplishing this through technical centers focused on R&D in submarkets like Auburn Hills or the 275 Corridor (Novi/Plymouth Township) that have infrastructure to support testing and prototyping or innovation centers in urban Detroit/Ann Arbor to attract Millennial talent that wants to live in an urban CBD.
Besides industrial spaces, does the Global Automotive Desk team also facilitate automotive industry-related office leases? What can you tell us about the demand for office space coming from Detroit’s automotive industry?
Jett: Automotive requirements fall into a lot of different asset classes including assembly plants and JIT manufacturing/distribution to support these plants. But we are seeing many more office-centric requirements including regional headquarters, technical R&D centers and innovation centers in urban CBDs—specifically as we see more and more automotive companies becoming technology focused in markets like Silicon Valley, Detroit, Shanghai, Tel Aviv etc.
Can you name a few (re)emerging auto industry markets?
Jett: Engineering and technology based talent in mobility and autonomous vehicles is driving centers of excellence in markets like Silicon Valley and Tel Aviv. But we are also seeing centers of excellence in secondary markets like Spartanburg/Greenville, S.C., Pittsburgh, Las Vegas and Barcelona due to shifts in manufacturing and where more innovative and agile automotive companies are locating. I would also say that we have seen an increase in CEE (Central & Eastern Europe) and Mexico due to labor cost and the need to build additional production capacity in automotive supply chains. There are also markets like Morocco that are supporting new investments by large OEMs like PSA Opel and all the part suppliers required to support these operations. Also, China’s electrical vehicle platform is on pace to outgrow the U.S. by a ratio of 5 to 1 over the next five years with the Chinese Government supporting this growth and infrastructure, and companies like NIO which are investing heavily in AI.
Image courtesy of Colliers International