As we approach the end of the 2011, there are clear indications of an improving economy. Although the rate of commercial property foreclosure is still high, the rate of absorption of foreclosed properties has risen appreciably.
These properties are not sitting on the market like they did the previous 24 months. One may say that this is not only a clear indication that we have turned the corner, but also that the community has genuine faith in the investment in commercial real estate.
Although it may be time-consuming for some local businesses to secure financing, it is evident that traditional lending institutions are far more accessible than they were in 2009 and early 2010, albeit some more than others.
The Small Business Administration (SBA) programs are propagated frequently, and the qualification process is not as cumbersome as in years past. The types of businesses that have taken advantage of the improved lending environment vary, and include automotive parts suppliers, manufacturing businesses, and distribution companies.
Many area businesses are unsure about the near future. Considering what Detroit has endured over the past three years, this is to be expected. Although cautious, these same businesses are moving forward in a confident manner. The bottom line is activity has noticeably increased.
More businesses are interested in purchasing and leasing properties. More businesses are in the market touring sites. While the site selection process may linger, and the average life cycle for each transaction is slower than usual, overall transaction volume has increased. There are indications that values may begin to stabilize over the months to come.
According to research analysts at L. Mason Capitani CORFAC International, the metropolitan Detroit industrial market enjoyed a net absorption of roughly 2 million square feet in the third quarter, making it the third consecutive quarter of positive net absorption. With an overall inventory of nearly 600 million square feet of industrial property, the vacancy rate has decreased to 12.8 percent.
Some of the larger transactions include Cabot Real Estate leasing and moving into 336,000 square feet of warehouse distribution space in Brownstown and YF USA Automotive Systems purchasing and moving into 221,000 square feet in Harrison Township.
One of the major contributing factors to our improving local economy is the availability of financing. In 2009 and the first part of 2010, most lenders had virtually no interest in providing a loan commitment to anyone who was automotive-based.
Considering the fact that we are the Motor City, this left a very small pool of local businesses that could qualify for a loan. The lending climate clearly has improved. The SBA programs are a very popular method of financing.
Although sale transactions have increased, there is still a strong push on the leasing side. Many landlords are doing their best to buy time until the market fully recovers. Asking rates on average have plummeted to just under $4 per square foot triple-net, down roughly 20 percent from where they were five years ago.
Free rent and low rates are almost automatic. Landlords that are financially capable are quick to make landlord improvements or offer attractive tenant improvement allowances. Property owners also are getting creative in an effort to absorb the enormous amount of vacant space.
It is difficult to determine if Detroit is witnessing a significant market recovery. There are several prognosticators that will argue one way versus the other. However, what is clearly evident is that the market is better than it was a year ago, and it continues to improve.
— Jason E. Capitani, SIOR, CCIM, is principal and executive vice president of L. Mason Capitani / CORFAC International.