Public, private sector work together to retool business and industrial parks for the 21st century.
Industrial activity is driving the real estate recovery throughout much of the Midwest. According to Grubb & Ellis, absorption in the industrial sector in 2011 was triple that of 2010, and double that of 2009. Activity included warehouse and distribution as well as manufacturing space in nearly all Midwestern markets.
The forecast projects new supply of space to double in each of the next three years, reaching 2008 levels of construction activity by 2014. This new activity is driven by a variety of economic factors, including pent-up demand, in-shoring and rising transportation costs.
Several of the elements that made Midwestern states a great historical manufacturing center, such as low average utility costs, abundant water resources, an established manufacturing base and a strong work ethic, remain long-term assets.
Many of the communities and industrial parks benefitting from increased activity were forward thinking in designing infrastructure and policies to enhance local assets and support private sector investment. These communities have created synergies between local infrastructure, regulatory structure and fiscal or support structures to best attract and serve specific local industry needs.
In contrast to the industrial redevelopment projects typically profiled in real estate publications, where industrial areas are reinvented as mixed-use areas, the examples that follow highlight communities that have made a commitment to reinvest and strengthen industrial areas.
The examples highlight business and industrial parks that underwent successful expansions or renovations to accommodate the modern needs of traditional and/or emerging industrial sectors, and as a result retained and recruited industrial sector businesses and jobs.
Grand Rapids and Kalamazoo have a long history as a manufacturing hub. The two cities offer significant industrial inventory and proximity to industrial behemoths in the Chicago and Detroit markets. Both markets suffered setbacks in the past decade, including the downsizing by automotive and furniture industry companies in Grand Rapids and an abrupt downsizing by Pfizer in Kalamazoo in 2003.
However, the West Michigan market has emerged as a significant economic engine, with the second highest employment growth rate in the nation in mid-2011, and a current unemployment rate of 6.5 percent.
Steve Marcusse, an industrial broker with Colliers International, credits the willingness of local governments to partner with the business community to accommodate unique needs. Efforts include regulatory and fiscal initiatives to help companies capitalize on existing local strengths such as utility rates and skilled workers.
Michigan Governor Rick Snyder’s infrastructure plan also includes several bricks and mortar and regulatory and tax reform strategies, with a goal of facilitating transportation and trade infrastructure in the state.
Industrial sector sales and leasing activity have filled nearly 1.5 million square feet of space in metro Grand Rapids during the past 12 months, according to Colliers International. Growth has come not only in traditional industries such as automotive and food processing, but also emerging medical and device manufacturing.
Retaining and growing existing industrial companies and recruiting new companies requires creative solutions, including the redevelopment of manufacturing space not into housing, but into modern industrial space. For example, Franklin Partners lifted the roof on 220,000 square feet of a vacant manufacturing facility, effectively creating a new modern manufacturing facility for Undercar Products Group.
Kalamazoo’s recovery from the loss of 1,200 Pfizer jobs has been slower, with coordinated public and private sector support designed to preserve industry talent and income. The resulting multi-pronged approach addressed infrastructure, funding and resources to support the life sciences industry.
Led by public and private sector leaders, a $150 million dollar fund was formed to encourage displaced scientists and engineers to remain in the area and start new companies. The development of a 69,000-square-foot business incubator and array of support programs resulted in the initial formation of 16 companies, several of which expanded to additional space within 5 years.
Additional investment came in the form of targeted tax enterprise SmartZones to supplant the successful but expiring Renaissance Zones, which had offered significant tax benefits for business investment in targeted geographic areas.
The new SmartZones provide similar benefits, but incorporate more focused incentives relevant to technology-based businesses. In total, 120 new life sciences companies have been established in the region since 2000, according to the Southwest Michigan Innovation Center.
Fort Dodge, Iowa
A multi-jurisdictional partnership was the basis for an industrial success story in Fort Dodge, Iowa. Identifying the need for unique infrastructure associated with the burgeoning ethanol and bio-diesel industries, the Greater Fort Dodge Growth Alliance, in partnership with local and regional partners, worked to create an agriculture-focused industrial park on land adjacent to existing industry leaders.
The presence of the VeraSun and (formerly) Tate & Lyle corn mills in the community provided the opportunity to develop a targeted Ag Industrial Park to attract additional supply chain partners.
Development of the 240-acre first phase of the park prefaced the arrival of complementary businesses including Valera and a newly-proposed CJ Cheiljedang amino acid plant, which would represent an additional $323 million in additional private investment within the park.
The well-located and efficient park design also contributed to Cargill’s purchase of the Tate & Lyle corn wet mill ethanol plant after the previous owner elected to eliminate ethanol from its portfolio. Cargill is making improvements to the facility, with a goal of producing 115 million gallons of ethanol per year at the facility, according to a company press release.
The park features several unique infrastructure elements that reflect the bio-ag focus. Examples include larger sites to accommodate on-site storage of grains and finished products and greater than average rail and road capacity catering to the high volume of raw materials and finished products that enter and exit the site daily.
The presence of two rail lines in the park was a key factor in attracting high-level corporate interest, according to local leaders. The partnership continues to explore strategies for further expansion of the park, taking advantage of the availability of additional adjacent land.
The effort recently received a $900,000 state grant to support additional rail infrastructure, as well as a USDA grant for additional development planning during the next eight months. This planning and engineering initiative will focus on an analysis of infrastructure and targeted industry trends to define the direction and magnitude of additional investment.
The plan is focused on supporting the regional economy from both the planning, support and funding perspectives. Estimates from the previous 2008 market study identify the potential for up to 3,400 jobs in a fully built-out park, which would represent a nearly 20 percent increase in the Webster County employment base.
Marshfield serves as a hub for central Wisconsin, with rail access and 4-lane highway connectivity to several in-state and out-of-state metropolitan areas. While the community is traditionally well known for serving as the headquarters of the Marshfield Clinic and associated research functions, it is also located adjacent to the silica sand deposits, which have become attractive for their use as frac sand for mining operations.
In 2007, the city had three traditional industrial parks, which were largely built out. The availability of property adjacent to the industrial area provided an opportunity to expand the Yellowstone Business Park, located on the southeast side of the city.
In order to identify opportunities to expand beyond the local industrial base, the city conducted a study. The purpose of the study was to identify manufacturing industries that represented the best fit for the available rail-served acreage, while also demonstrating potential for future growth.
The study highlighted four primary target industries, and identified typical power requirements, infrastructure needs and site sizes commonly associated with these industries.
Despite the recession, the park has successfully developed 57 acres, surpassing historic annual absorption trends regionally. Jason Angell, director of planning and economic development for Marshfield, credits the park’s tremendous access via 4-lane highway and main line rail service as a major factor in attracting the anchor tenant, TexSand Distributors.
The company, which produces frac sand for mining operations, also benefits from the park’s proximity to the municipal wastewater treatment plant. This additional infrastructure tool allows the company to purchase effluent for its treatment activities, resulting in a significant cost savings.
An additional success story driven by infrastructure and connectivity is illustrated by south-central Wisconsin’s Gateway Business Park, located in Baraboo, Wisconsin. The recent realignment of Highway 12 placed the park immediately adjacent to the new 4-lane road, greatly enhancing visibility for the park’s tenants.
Chris Caulum, senior real estate associate at Oakbrook Corp., who is listing land in the park, identifies the park’s new highway proximity and visibility as a key factor driving tenant interest. Prospective users view the location as a benefit not only for transportation and distribution, but also as a workforce recruitment tool.
The more visible location provides companies in the park with greater name recognition in the marketplace, which can provide a competitive edge over more traditional industrial park locations for companies relying on recruitment of high-demand workers.
While Gateway benefitted from a physical road realignment creating greater visibility, other developers in communities with high-core manufacturing employment bases are taking advantage of lower real estate costs to acquire more prominent sites for new parks or expansions to existing parks.
Despite the economic and geographic diversity of the areas profiled in this article, there are several key factors that have contributed to the success of these and other similar parks. Three of the trends likely to factor heavily into location decisions in the near to mid-term are highlighted below.
(1) Infrastructure needs are evolving and diversifying: Depending on local industry clusters, companies are requiring more specialized infrastructure. Increased sophistication in site selection, exponential growth in demand for broadband from advanced manufacturing operations and expanded logistics networks have all created specialized infrastructure demand from users of all sizes. Parks that can provide the strategic in-place infrastructure for the industries that they hope to attract can offer significant cost savings over their competitors without significant increases in total investment.
(2) Investment in transportation networks is a long-term strategy: Many new and existing parks are investing significant capital to build out or upgrade transportation infrastructure. Some are taking advantage of lower-cost construction labor, while others are recognizing the growing importance of multi-faceted distribution networks.
Rail freight began to experience a resurgence in demand in 2010 in the wake of the Great Recession. According to the Wisconsin Department of Transportation, rail tonnage is anticipated to grow by more than 16 percent in the state through 2020, outpacing truck traffic. Similar increases are anticipated for Iowa and Minnesota.
(3) Access to the workforce is critical: This trend isn’t new, but remains important despite generally high unemployment regionally and nationally. This factor creates the need for some communities to expand economic development to focus on the provision of residential amenities and incentives to encourage new housing development, thereby accommodating employees at existing companies and expanding the local worker base for potential new employers.
At the same time, depressed land prices have allowed industrial park developers to locate on, or expand toward, major transportation corridors for prime visibility. Many companies believe that this presence and visibility provides a generally positive perception and increased awareness in the community, resulting in the ability to recruit and attract higher-quality workers than parks located in more traditional industrial environments.
The good news for public and private park owners with available real estate is that strong sales and leasing activity in the short term will likely result in a surge of pent-up construction demand once election season is past and consumer confidence has stabilized.
However, the increased need for property tax revenues at the municipal level and lack of any other viable development activity will create an increasingly competitive market as communities become aggressive in courting new investment.
For manufacturing and distribution companies, this competition is starting to spur efforts on the part of public-sector entities to better understand the needs of the companies and industries that are attracted to the region.
To the extent that this industrial focus spurs investment in strategic infrastructure and promotes greater industry understanding, the Midwestern economy will be the true beneficiary.
— Errin Welty is a market analyst with Vierbicher and is based in the company’s Madison, Wisconsin office. She works with public and private sector clients to solve economic development, site planning and engineering issues.