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Strong and steady is an apt description of the current course of the commercial real estate market in the greater Grand Traverse Area of Northwest Lower Michigan. Traverse City’s unemployment rate registered 7.5 percent in June, virtually unchanged from a year ago but down dramatically from 14.3 percent in March 2010.
In 2012, the commercial real estate market rebounded with a total of 400,000 square feet sold, up from approximately 300,000 square feet in 2011. Last year’s rebound was fueled largely by increased investment in the industrial warehouse and light manufacturing market. More than half of the square footage absorbed last year was in this particular sector.
Only 139,000 square feet of commercial real estate space has been absorbed year-to-date through July. This is considerably less than the 300,000 square feet absorbed during the first seven months of 2012. The reduction in absorption activity is due to a shortage in the available inventory of quality light manufacturing and industrial warehouse buildings.
To put that statement into context, consider that a total of 22 industrial and manufacturing buildings ranging in all sizes traded hands in 2012. Currently, we have only six buildings 20,000 square feet or larger on the market for sale, and another four that are available for lease.
So, with a shortage in available industrial warehouse and light manufacturing buildings, where are the property sales coming from this year?
Simply put, retail and restaurants have been leading the charge in 2013 Through the first seven months of this year, retailers and restaurants have absorbed approximately 43,000 square feet of space. This figure is up slightly from the 39,000 square feet absorbed during the same period a year ago.
Next Great Demand Driver
The next boom will be in the agricultural industry. The Northern Michigan area has always been known as the Cherry Capital of the World and hosts to the National Cherry Festival. Farmers and entrepreneurs are capitalizing on the growth of wineries, microbreweries/taprooms and distilleries.
According to the Traverse City Convention & Visitors Bureau, this region boasts approximately 35 wineries, 13 microbreweries/taprooms and five distilleries. All of these establishments are supported by locally grown grapes, hops and grains.
So much success has been had by these businesses that the Grand Traverse Area has received numerous accolades. Indeed, Traverse City is a Top 10 Place to Enjoy Local Wines (USA Today). It also happens to be One of America’s Top 10 Wine Destinations (Tripadvisor.com), Top 3 Emerging Beer Towns in the USA (Draft Magazine) and Top 7 Beer Destinations in North America (Travel Channel).
Another agricultural concept that is gaining traction locally is the farm-to-table movement. Local farmers are working directly with the restaurants, schools and individuals to provide locally grown products to the area’s residents and tourists.
For example, Cherry Capital Foods is a unique food distributor based in Traverse City. It works with farmers, growers and producers both locally and regionally, but only from the state of Michigan. Cherry Capital Foods handles more than just fruit as the name would imply, but all types of locally grown vegetables, eggs, dairy and an assortment of meats.
The success of Cherry Capital Foods recently prompted the company to move from a 10,000-square-foot lease situation to the purchase of a 41,500-square-foot facility. The facility it purchased was originally built as an ice arena in the 1970s, but was recently home to an automotive parts wholesaler.
The company’s ability to bring fresh, locally grown products to the market has also helped put our area on the map as one of the country’s top Foodie Towns, also supported by recent accolades including Top 5 Foodie Towns in America (Bon Appetit), Top 5 Food Towns in the Midwest (Midwest Living), and first place in the Top 10 Foodie Cities (Livability.com).
What’s Ahead
We expect with the successful selling season this summer that retail will remain strong in the coming year, eventually leading to a shortage of quality retail and restaurant space. We already have a deficiency of newer strip centers, with the current inventory dominated by properties built in the 1970s.
We may be getting to the point of new construction in the retail and restaurant market, as well as the industrial warehouse and light manufacturing sector. If so, that would provide new opportunities for those businesses looking to enter this market.
New building construction, which we haven’t seen much of in recent years, would help absorb some of the vacant commercial land. Sales of vacant land have been almost non-existent for the past three or four years.
Last year’s rebound was also spurred by low interest rates, especially in the SBA 504 Loan program, which enabled an owner-occupier to obtain a 20-year, fixed-rate financing with a 10 percent down payment at a rate of 4.5 percent.
As of Aug. 21, the interest rate for the same program is 5.24 percent with indications that it may continue to creep up during the next 12 months. The cost of financing is still reasonable, but we have already seen an increase in leasing versus purchasing this year compared with 2012.
The near-term prospects for the local commercial real estate market look quite promising. If the sun continues to shine, the agricultural and tourism industries in Northern Michigan also will shine, and tenant demand for space will remain healthy.
— Kevin Endres, principal of Three West LLC