Retail Asset Sales Boom Despite Soft Lease Market

DETROIT-Retail vacancies have risen, and construction has slowed in the metropolitan area in the last year, but sales of retail buildings have stayed strong, according to a recent study by Marcus and Millichap. The economy hasn’t hit the Detroit area as hard as other areas in the US, says James Holt of the company.

“This can be attributed to Detroit’s industry diversification, absence of a large concentration of high-tech and the positive impact sales incentives have had on the automotive industry,” Holt says.

However, the economic downturn has still hit the area. For example, current conditions will prompt developers to remove several million square feet of construction from their drawing boards, Holt says.

“Only 1.3 million sf of new space is expected in 2003, a 43% decline from the 2.3 million sf added in 2002,” he says.

Projects include Milford Crossings in Milford, Oakwood Plaza in Allen Park, Willow Ridge in Van Buren, Chesterfield Commons in Chesterfield and Gateway II in Farmington Hills, as well as redevelopment efforts in the area.

Vacancies are expected to continue an upward climb into 2003, and are anticipated to close in December at more than 9%, Holt says. Rent growth has stagnated, he says, and more space has come into the market because of bankruptcies such as Jacobson’s and Kmart.

Good news is around the corner, however, Holt adds.

“Improved occupancies should be evident by 2003,” he believes. Also, big box developments have not faltered, Holt adds.

“Home Depot has four stores under construction or planned in Detroit and Farmington Hills, Walgreens remains active with three new stores in the planning phase and CVS, Lowe’s and Target also have stores under construction or well into the planning process,” Holt says.

Steady sales are expected ahead, Holt predicts. Through September 2002, sales of retail centers–68 transactions–had already surpassed the total number of transactions recorded in 2001. Free-standing retail continued to dominate activity.

Holt says the Detroit area’s short-term retail future is cloudy, and vacancies could continue to increase.

“Longer-term, however, prospects for positive economic growth, increased retail demand and a sharp decline in new completions will put Detroit retail back on a positive track,” he says.