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After a seemingly relentless economic recession, the retail atmosphere is changing in southeastern Michigan as more local and national tenants look to grow here.
The positive momentum that began in 2011 in the retail industry has continued. Retail sales rose modestly in 2012, and retailers expect sales to continue to rise in 2013.
The source of the optimism stems from the resurgent auto industry, which drives metro Detroit’s economy. Job growth is accelerating, leading to a drop in the unemployment rate.
Absorption is positive in the Class A industrial and office markets. All of these factors are having a positive effect on Detroit’s retail market.
Retailers eye downtown
Downtown Detroit is bursting with an energy not seen since the 1950s. Dan Gilbert, owner of Quicken Loans, is responsible for much of the change. His recent real estate acquisitions, 15 buildings to be exact, and relocation of 7,000 employees to the central business district, have created a buzz that retailers are noticing.
Olga’s, Bagger Dave’s, Buffalo Wild Wings and Moosejaw have all planted roots downtown. Whole Foods Market is scheduled to open this year in midtown near the Detroit Medical Center and Wayne State University. National retailers are lining up to join the action including: 7-Eleven, DiBella’s, Potbelly Sandwich Shop and BoConcept Furniture.
Gilbert isn’t the only factor helping to boost Detroit’s economy. The city’s biggest employers have collaborated to create an incentive for their employees to “Live in the D.”
The initiative works by providing cash incentives to employees who choose to move downtown, and it has been a huge success. Apartments in Midtown and in the central business district are between 97 and 99 percent occupied, and more housing is in the pipeline for 2013.
Many companies have relocated downtown or have established a presence in Detroit because of the changing atmosphere. For the first time in their history, Chrysler Group and Twitter opened up downtown offices and Fossil leased space in Midtown. The attention is on Detroit.
Suburbs experiencing uptick
Moving out to the suburbs, some well-known submarkets are experiencing the same uptick. Jana Ecker, city planner for Birmingham in Oakland County, states the retail occupancy rate is 98 percent, the highest she’s observed in 10 years. Birmingham’s strong demographics and accessibility were key factors in attracting national retailers such as lululemon, Paper Source, Francesca’s Collections, Hyde Park, and J. McLaughlin.
Ann Arbor, home to the University of Michigan, reports rents of approximately $40-plus per square foot, triple net, at projects such as the Borders bookstore redevelopment near the university’s central campus and RSW Washtenaw LLC’s 100,000-plus-square-foot Arbor Hills Crossing development on Washtenaw Avenue, west of U.S. Route 23.
Arbor Hills Crossing began construction in 2012 with a scheduled August 2013 opening and is nearly 100 pre-leased with tenants such as Arhaus, Running Fit, Brooks Brothers Flatiron, lululemon, Hot Mama and Anthropologie.
In addition, Walgreens recently announced a store opening in a landmark building located in the heart of the university’s central campus.
Similar to previous years, the most active national and regional retailers are food and discount concepts. Five Below intends to open 20 stores by the end of 2013. Big Lots has 40 stores throughout the state with plans to open four more by the end of this year. 7-Eleven has 20 stores in the pipeline for 2013, hoping for at least one in Detroit’s central business district.
Gap Inc. is bringing its newest active wear apparel concept, Athleta, to Metro Detroit with plans to open up four stores. Meanwhile, DiBella’s, Firehouse Subs, Penn Station, Subway and Jersey Mike’s Subs caters to the sandwich aficionado. All of these fast casual concepts have expansion plans for metro Detroit.
Panda Express, which historically leases space in regional malls, announced its plan to open up stores in traditional shopping centers and freestanding buildings. Additionally, Panera Bread, McDonald’s, Tim Hortons, Hungry Howie’s Pizza and Tropical Smoothies are all scheduled to open up new stores this year.
The self-serve yogurt and burger craze continues with Menchies opening a store in Novi. Five Guys Burgers & Fries and Halo Burger will open additional locations as well. Massage retailers continue to open up new locations with Massage Green and Massage Luxe being the most active in this category.
Class B and C struggle
The challenged segment is the Class B and C shopping centers. Many successful retailers were able to take advantage of reduced leasing rates during the recession and upgrade their location, leaving their old spaces behind.
In Detroit, Redico has broken ground on the Gateway Marketplace located at the southeast corner of Woodward and Eight Mile and plans to open fall 2013. This 325,000-square-foot project will be anchored by Meijer and Marshalls along with Petco, Five Below, K&G Fashion, Payless Shoes, Dots, RadioShack, Starbucks, Subway, Bob Evans, Footlocker and more.
The successful redevelopment of the Livonia Mall at Seven Mile and Middlebelt roads in Livonia continues with the addition of Kohl’s and a number of other smaller tenants. In addition, The Novi Towne Center in Novi has been redeveloped to accommodate a 150,000-square-foot Walmart Supercenter.
We expect the positive momentum to continue through 2013 and look for an increase in new retail developments as vacant space continues to be absorbed and rental rates inch back up to levels that can support ground-up developments.
— Bruce Baja is director of retail and a principal with the Southfield, Mich., office of Signature Associates, a full-service commercial real estate firm. Angela Arcori is a retail broker with Signature Associates.