Detroit Retail Market Running Strong as New Year Begins

by Kristin Harlow

The “retail apocalypse” predicated on the pandemic never really materialized. Instead, we’ve seen retail do what it always does: evolve. Much as the rest of the country, metro Detroit’s retail real estate market has evolved and come back in a big way. 

Tenants on the move

As vaccines were adopted and the economy allowed to reopen, the economic rubber band snapped back quickly and stronger than many of us could have predicted. Retailers were dusting off pre-pandemic expansion plans and back to signing leases in 2021. We saw new openings and new market searches from BJ’s Wholesale Club, Burlington, Carvana, Chick-fil-A, Chipotle, Starbucks, Crunch Fitness, Edge Fitness, Gabe’s, iFly, Jollibee, Meijer, Portillo’s, Ross, Shake Shack, Smoothie King, T.J. Maxx, Total Wine & More and Tropical Smoothie Café.

Brad Rosenberg, Mid-America Real Estate Group

2021 also presented a big void in the Michigan furniture market following the bankruptcy of Art Van (which controlled 30 to 35 percent of the market). Numerous players including Gardner White Furniture, Ashley Furniture and Value City Furniture all quickly snapped up this real estate, immediately increasing their market share.  

Other categories that continue to seek space include car washes (which has to be one of the most active categories out there seeking one- to two-acre parcels), fast casual dining (most of which are optimizing their layouts to include pick up/drive-thru lanes), “medtail” (think urgent care, dental offices, physical therapy offices) and cannabis. 

All are continuing to open in traditional retail areas. We believe we will continue to see this retail evolution as communities evolve in their expectations for this sector.

Backfilling vacant space

2021 also saw sky-high construction costs and a labor shortage for skilled tradespeople. This dampened the ability to build economically and resulted in a push to backfill existing shopping centers. About 2 million square feet of retail space was absorbed during this time. Smaller spaces found new tenants, and big boxes vacated before and during the pandemic found new users if not new owners. This rebound of activity quickly brought the market back to and above pre-pandemic rents and occupancies.

Tony Schmitt, Mid-America Real Estate Group

More bets on downtown

While there is still a lot of caution around downtown retail in general (given the slow return of office tenants), numerous groups continue to buy up downtown real estate. The leaders include Bedrock, the real estate development and operations arm of Quicken Loans founder Dan Gilbert, the Ilitch organization (owner of Little Caesars) and numerous local landlords quickly changing the look and feel of the downtown area.  

One of the biggest developments is Bedrock’s billion-dollar Hudson project, which is going vertical. Once completed, it will include 1.4 million square feet of office, retail, food and beverage, hotel, residential, event and open space. At nearly 700 feet tall, it will be a beacon in the city. 

Meanwhile, the Ilitch organization that owns Little Caesars Arena continues to expand the restaurant and retail uses at properties it controls near the venue. Ilitch also announced a partnership with Stephen Ross of Related Cos. to build a new $250 million academic research center including a technology incubator.

The new SOMA, a seven-acre mixed-use development in Midtown that will include 350 apartments, is under construction. Target has signed on to occupy a small-footprint 32,000-square-foot store as part of the project. A nearby Whole Foods Market provides another anchor within the district.

Residential also is being reborn at higher densities downtown, in Corktown and in Eastern Market, with an orientation to live-work-play environments, including retail. 

Year-end sales spike

Shopping center sales spiked late in the fourth quarter, as typically happens. Regional and national investors are buying, even at declining cap rates, reflecting confidence in the market and the asset class. 

The reinvention of regional malls will be a story over the next two years. Several major malls traded hands recently, with others in play. Their repositioning and redevelopment plans, in some cases, are still to be determined. While many are obsolete, they sit on prime real estate ready to tell their next 50-year story. Stay tuned.

Brad Rosenberg and Tony Schmitt are partners with Mid-America Real Estate Group. This article originally ran in the February 2022 issue of Heartland Real Estate Business magazine.

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