For a city that has at times been portrayed as emblematic of the kind of economic fallout left in the wake of the recent recessionary cycle, Detroit is actually responding quite well. The current state of the Detroit office market is just one data point — but it’s a promising one. In greater Detroit — and across Southeast Michigan — there are tentative signs that things are moving in the right direction for the first time in several years. Not everything is positive by any stretch of the imagination, but the progress, while tentative, looks genuine. Since the city’s office market bottomed out in the summer of 2010, it has been slowly and steadily recovering. There were a few low points in August and September of last year, but the market began absorbing some space toward the end of the year, and that trend has continued in the first part of 2011. As you might expect, however, the progress has been uneven. Consolidation areas like Southfield, where there is a lot more activity in the marketplace, have generally done slightly better than destination-focused markets like Dearborn and Livonia, which had taken a more significant initial blow and subsequently have not …
Midwest Market Reports
Although the Indianapolis retail market took a hit during the downturn, it never sunk as deeply into the doldrums as other U.S. cities, and has been relatively quick to rebound from its modest slide. Maintaining an unemployment rate well below the national average (8.7 percent at year-end 2010), with the prediction of 20,000 new jobs for 2011 ensures this market is headed in the right direction. Retail real estate brokers in this statistical region of more than 2 million were actually quite busy in 2008 and 2009 when most other regions were reeling from the economic crunch. Recognizing still-strong market fundamentals, retailers tried to seize on the doom and gloom of the times to lowball local landlords, who for the most part would not yield to unreasonable rent offers that they knew would tie them up for years to come. While retail vacancies remain low in the city’s most robust retail corridors, they are higher than they were before the downturn began in areas where demographics have shifted. We continue to see a flight to quality in this market with the most attractive, well-positioned shopping centers commanding surprisingly strong rents. For instance, Class A big box rents in highly desirable …
The St. Louis market, long known for its diverse economy, has been slow to extricate itself from the downturn. The retail real estate brokerage business has been mostly dormant for the past 2 years, particularly the tenant representation side, as scant few national retailers dared to brave the murky expansion waters. Rental rates in the market decreased slightly from third quarter 2010, ending at $12.51 per square foot. However, rates have held up better in some submarkets, including West St. Louis County, where they are $20-plus per square foot. Prime properties at hard corners are holding their own, but second-tier properties have taken a pretty hard hit with rents down into the mid- to high-single digits. When the recession started, many landlords granted rent reductions almost uniformly to tenants and will have to live with their decisions for a while, but other owners held fort and demanded to see sales reports as proof. This resilient region of nearly 3 million people is starting to show new signs of life heading into spring 2011. The market has seen slight improvements in retail vacancy rates, which dropped from 8.4 percent in third quarter 2010 to 8.1 percent in fourth quarter 2010, according …
The U.S. apartment sector staged a strong recovery in 2010 well ahead of expectations, despite modest job creation and stubbornly high unemployment. Net absorption surged, with occupied stock rising by nearly 200,000 units, double the number of apartments constructed and the highest level on record since 2000. Several factors contributed to high levels of absorption, including the release of pent-up renter demand as households de-bundled in the wake of the recession. In addition, apartments benefited from private-sector job growth in the critical 20- to 34-year-old cohort, expiration of the homebuyer tax credit, displaced foreclosed homeowners entering the renter pool, immigration and lower unit turnover. Renting also became a lifestyle and economic choice for many households as the effects of the housing collapse and recession persisted. Continued recovery in 2011 depends more heavily on improvements in the job market, which should gain momentum as the year progresses. Building on that momentum, operating conditions in the suburban Chicago apartment market will strengthen considerably this year, building on improvements in vacancy and rents recorded in 2010. Apartment construction will sink to one of the lowest levels in the past decade, minimizing competition for tenants at a time when renewed job growth will accelerate …
Like virtually every major metropolitan area, the Kansas City market has suffered in the economic malaise of the past few years. However, it hasn’t experienced the irrational highs and devastating lows that have beset markets in Arizona, Nevada and Florida. In fact, the submarkets that are struggling the most are the few that got ahead of themselves in anticipation of housing construction and leasing that never materialized. In many ways, this scenario has enhanced the position of well-located, established centers in fully developed submarkets. Many developers are renovating and, in some cases, re-tenanting their shopping centers situated in more established Kansas City neighborhoods. While demand is certainly not as robust as it was in the heyday of 2006-2007, we are still seeing more-than-respectable leasing of small tenant spaces of 1,200 to 1,500 square feet and of “mid-box” spaces ranging from 5,000 to 10,000 square feet throughout the market. Service firms such as cleaners and hair stylists, plus small eateries including breakfast/lunch-only restaurants such as Big Biscuit, as well as Starbucks, are taking smaller spaces. Dollar Tree, Dollar General and other value merchandisers are mostly taking the mid-box vacancies. Traditional lifestyle centers, however, seem to be the exception. They continue to …
Southeastern Wisconsin, which consists of a seven-county region, is experiencing slight growth in the industrial markets. We have seen positive absorption throughout the area with rumblings of future deals on the very near horizon. The region is experiencing flat to declining leasing rates due to hungry landlords and excess available space. Day-to-day activity is busy, but many of the current tenants that are touring are typically attempting to procure a better deal in their current location. Tenants in the market are still in a wait-and-see mode. The southeastern region of Wisconsin has seen very little new development. Wispark LLC purchased a 185,000-square-foot building in Racine County for CalStar Products, a green brick manufacturer that will manufacture bricks and pavers from fly ash obtained from the nearby We Energies Oak Creek power plant. Wispark is also planning a new 170-acre business park in the southern Milwaukee county community of Oak Creek. The business park is shovel-ready and part of a TIF district. “There is not a lot of new development going on in Southeastern Wisconsin, but I would say there is uptick in the market,” says Todd Rizzo, vice president of Milwaukee-based Wispark LLC. CenterPoint Properties has landed a build-to-suit project …
The St. Louis office market continues to see a relatively slow pace of activity. As the economic downturn hit the market slightly later than the rest of the country, the recovery is also delayed, and companies continue to be cautious, with renewals dominating the leasing market. As of the end of the third quarter, the market-wide vacancy rate was 16.3 percent, slightly lower than second-quarter figures. The vacancy rate has stayed steady between 15.5 and 16.5 percent for the past 5 quarters. Firms continue to employ the blend-and-extend strategy of extending leases before the expiration date and locking in a lower lease rate at the same time. While asking rates have remained relatively steady, effective rates are lower than 2 or 3 years ago, and concessions, including free rent, are still being used by landlords to entice potential tenants in most submarkets. Much of the activity within the marketplace is being seen at smaller sizes, between 3,000 and 5,000 square feet, with a dearth of large tenants in the market. Exceptions to this include Panera Bread, which recently leased 71,130 square feet at 3630 South Geyer Road. Recently, the St. Louis office market was dominated by the moves of several …
The Twin Cities area, a region of more than 3 million people, is still trying to extricate itself from the base of this pesky commercial real estate cycle. While the retail real estate deal volume is starting to pick up here, it remains more of a trickle than a flow, with value-priced merchants spurring much of the activity. In the first half of 2010, the Twin Cities retail vacancy rate stood at 10.4 percent, meaning nearly 7 million square feet of retail space remains vacant, according to Minneapolis-based NorthMarq, a commercial real estate services firm. On the national tenant side, several retailers are repositioning themselves, either by upgrading existing stores or relocating to more advantageous spaces as leases expire. There are also rumblings of several national tenants eyeing vacancies in the 10,000- to 25,000-square-foot range. Not surprisingly, value merchandisers such as Dollar General, Big Lots and Dollar Tree have increased their footprints in this environment as well. We are also seeing a slight resurgence in demand from mom-and-pop tenants. As in past downturns, there’s a growing roster of talented people who were displaced by corporate America that are opening their own retail businesses. At the commodities level, the grocery trade …
For those who were expecting some market relief by now, there is not a great deal of positive prognosis to provide. Despite the slow rise in the stock market since its fall, the market continues to suffer from mediocre progress with its continuous ups and downs. There is still much change needed in the global economy to sustain the stock market growth we need to realize a full and effective recovery of other markets, including commercial real estate. But I would like to say that we are now bouncing off the bottom with an ability to understand where market corrections have settled in terms of value, cap rates, absorption and development, which is all but non-existent. With historic high unemployment and the uncertainty of what new pothole we might hit while we are finding our way out, it may still be a rough year or more ahead of us. Much depends on how the commercial lending industry plays out the myriad transactions that still linger in their portfolios. The penalties for a defer-and-deny or an extend-and-pretend philosophy may not yet to been fully realized. On a positive note, if consumer confidence continues to eek up, while other economic indicators remain …
It’s no secret that the greater Detroit area suffered a double hit in the last 4 years, first from the well-publicized decline in auto sales and then from the 2008 crash and lengthy downturn.Despite the economic gyrations, however, there is a considerable upside and leasing momentum to talk about. Several new-to-the-market retailers, restaurants and fitness chains are landing in the region, including ULTA, which has done 10 deals in the last 7 months in mostly high-income areas. Discount grocer ALDI has opened 20 stores in the past 18 months, most often purchasing land to build 12,000-square-foot stores in high-density, middle-income areas. Other new retailers to the market are Five Below, Christmas Three Shops, buybuyBABY, Yankee Candle, clothier Citi Trends and a new concept by local furniture giant Art Van called Pure Sleep. Five Guys Burgers and Fries, Fat Burger and Chipotle have also moved into the market, as have Fitness 19, Planet Fitness and their much larger competitor LA Fitness. LA Fitness is opting for 50,000-square-foot locations, both stand-alone and retrofit, primarily in professionally oriented, mid-to-upper income areas. The chain has opened eight locations in the market, and in the past 2 years, it has built clubs in such high-traffic …