Elkhart County industrial building space tightening as economy rebounds

Older buildings exist but aren't as attractive to today's manufacturers.

Posted on Aug. 28, 2014 at 9:06 a.m.

In the mid 2000s, Elkhart County factories were humming and developers built industrial space on speculation they would be able to easily find tenants or buyers.

Then the economy crashed in 2008 and 2009, and suddenly space was abundant and cheap.

But as manufacturers have recovered, led by the booming recreational vehicle market, firms looking to expand are finding it increasingly difficult to find not only enough skilled workers, but adequate buildings.

"Right now there’s more demand than supply,” said Jeremy McClements, senior broker at commercial real estate firm Bradley Co. ”Nobody has built speculative buildings since 2007, but we’re probably close to the time where we will see developers advertising they’re going to do that.”

In the first quarter of 2013, there was about 4.4 million square feet of actively marketed industrial space in Elkhart County. That figure fell to 3.8 million in the second quarter, 3.4 million in the third quarter, and 3 million in the fourth quarter, according to Bradley Co.’s 2013-2014 market study.

”There was so much supply for so long that prices got really depressed,” McClements said. ”There were a lot of choices. Now rental rates have gone back up.”

Dave Carter & Associates, a distributor of electrical and plumbing parts for the RV and manufactured housing industries, is moving from its building off C.R. 17 in Elkhart to a much larger facility it’s building in Goshen because it needed to expand and was landlocked. McClements is listing the existing building and said he’s receiving heavy interest because of the scarcity of space in the area.

There had only been about 100,000 square feet of available industrial space in the entire city of Goshen until recently when Supreme Industries listed for sale an additional 100,000 square feet of space, spread out over 10 buildings, in a plan to consolidate its campus after selling its shuttle bus division off to Forest River Inc. in March.

Mark Brinson, community development director for the city of Goshen, said the shrinking availability of modern industrial space is a real problem.

"That’s a concern to us because companies are looking to move into something that’s already there,” Brinson said. “After the recession we haven’t really seen developers doing spec building projects. That’s really tightening.”

On the bright side, economic development and government officials in Elkhart County are quick to react when a company wants to build or expand, Brinson said.

"In some communities it takes months and months, sometimes a year, to get a new project approved,” he said. ”We don’t have that here.”

Brinson said he has been in ”preliminary discussions” with a developer considering building some industrial space on speculation, ”but there’s nothing to announce.”

He said the city’s Waterford Commons area, with its industrial-zoned land and city utilities in place, would be an ”ideal” spot for such a project.

"There are buildings available but the problem is a lot of older buildings around Elkhart County are not attractive for manufacturing,” Brinson said.

They aren’t energy-efficient, their ceilings are too low or they were expanded “piece-meal” over the years, so they are not efficiently laid out.

Brinson said he can understand developers’ reluctance to build on speculation.

"Certainly there were developers who got burned when the recession hit and they had buildings that sat vacant for a while, so I understand why there would be that hesitancy to take that risk,” he said. “But the flip side is if you don’t take that risk, you may miss an opportunity to land a company.”

Having new industrial space that has been built on speculation “is a huge marketing tool for a community to offer,” Brinson said. ”It does put us in a position where we at least get noticed by companies.”

Dorinda Heiden-Guss, president and CEO of the Economic Development Corp. of Elkhart County, couldn’t agree more.

"We do have a dire need for industrial buildings,” said Heiden-Guss. “We have lost international clients because of the age of our existing structures. Our German clientele want them to have been built in the 1980s or newer.”

The Muncie area has landed some German-owned employers in recent years because of the modern industrial buildings that have been built on speculation there, she said.

But Heiden-Guss said she has recently been contacted by several investors and developers who are considering building spec industrial buildings in the county, with the projects ranging from 40,000 to 100,000 square feet. Some are local while others are from out of state, she said.

"Most buildings have been absorbed by the boom and strength of the RV and marine industry,” said Heiden-Guss. ”It’s a risk anytime you invest significant dollars on a spec building but it does help put us on the map and it draws traffic through our county.”

It’s a risk Brent Miller said he doesn’t think developers will end up taking. Miller, senior vice president of FM Stone Commercial, said the lease market for industrial space in Elkhart County is just too weak for a developer to recoup construction costs.

The only way Miller sees more industrial space slowly becoming more available is when existing firms vacate their facilities to build new ones. But of course that doesn’t happen when new firms enter the area.

For example, the industrial park taking shape in Bristol involves new construction by four companies. Two of them, Alliance Sheets and Satellite Industries, are new to the area, and Lami-Plast is moving there from an Elkhart building that was damaged in February by a fire. Only Reschcor will leave its facility on Middlebury Street to the market.

"To build spec in this market, I think, would be shooting yourself in the foot,” Miller said. “Everyone can dream and wish, and I think that’s what you’re hearing. I’m all about reality. Unfortunately it’s going to make our job interesting and difficult over the next couple of years.”

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