GM, Chrysler Merger Threatens Detroit Markets

Industry executives have struggled to find positives to mention when talking about Detroit's woes, which include a hurting automotive industry that may see a merger between giants General Motors and Chrysler, as well as a credit crunch that put a hold on even the ambitious growth plans. "We've experienced a lot of pain," says Fred Liesveld, EVP and managing director of the Detroit office of Grubb & Ellis. "But what doesn't kill you makes you stronger, right? For the most part, Detroit businesses were already leaner and wiser, having been hit early by this crisis. We'll eventually find our legs."

All three of the main counties in the Detroit area: Wayne, Oakland and Macomb, all have headquarters or main offices of the Big Three automakers, and thus have suffered due to low sales numbers. However, Ann Arbor has never been dependent on the automotive industry, and its popularity showed the only instance of activity in the third quarter. For example, an office market report by Grubb & Ellis showed the city's Northeast section absorbed almost 140,000 sf, by far the highest in the region. Con-Way Freight consolidated and relocated into about 136,000 sf in the Earhart Corporate Center in this submarket.

Ann Arbor also has the best showing with multifamily units, with only about 3% vacant, where the local market is at around 6.5% vacant. "Active investors will likely target the safety locations such as Ann Arbor," said Steven Chaben, regional manager of the Detroit office of Marcus & Millichap, "where strong demand for student housing continues to support the lowest average vacancy rate in the metro." Student housing is rich in the area, according to a third quarter report by Chaben's company.

In the rest of the Detroit area, renting is holding steady because home sales have hit remarkable lows. However, builders are afraid to start new projects, or just can't afford it because of the lack of credit options. New condo projects lead the construction for multifamily this year, according to the report, including about 60% of that figure slated for Detroit.

Job losses to the tune of about 38,000 throughout the region this year have kept growth in check as well, following about 36,400 positions reduced in 2007. Liesveld says a proposed buyout of Chrysler by GM could have much more staggering cuts. "Let's say there is a merger. That's going to hurt an awful lot of people here. The automotive industry will survive, but it will be a lot different than what it looks like now. The one bright spot, I think Michigan will continue its push to become the leader in seeking alternative energy technology for vehicles, such as the new plants for the Chevy Volt. America is seeing a race for clean technology, and we should benefit from that."