By S. Voyles
If there’s any doubt the health of the commercial real estate market is critical to the American economy, consider the following:
U.S. commercial real estate is worth approximately $5 trillion, including 4 billion square feet of office space; 13 billion square feet of industrial property; almost 9.5 billion square feet of shopping center space; 4.4 million hotel rooms; and 33 million square feet of rental apartment space.
These numbers are from Washington, D.C.-based The Real Estate Roundtable, which counts among its membership leaders of the nation’s top publicly held and privately owned real estate ownership, development, lending and management firms, and national real estate trade associations.
There’s no doubt 2008 was a challenging year in Michigan, according to two experts.
“With automotive sales dropping, industrial construction has slowed to a near standstill,” says Paul Hatcher, president of Novi-based Oliver/Hatcher Construction, which specializes in the planning, design, construction or renovation of retail, office, industrial and medical facilities. “Some warehouse and distribution construction is still taking place, but it’s very limited.” Investing funds into renovating existing structures continues, he adds, due to “decreasing prices of existing buildings as well as people deciding to renovate
in lieu of moving.”
John A. Latessa Jr., managing director of the Detroit office of CB Richard Ellis Group (CBRE), one of the world’s largest
commercial real estate services firms, says the office and industrial vacancy rate are both up in southeastern Michigan. “The third quarter office vacancy rate is just at over 25 percent, with Troy topping 30 percent for the first time,” says Latessa. “Industrial
availability is up very slightly over last year, to 13 percent.”
Such trends, notes Latessa, offer opportunities. “Given such vacancies and availabilities, new deals, renewals and extensions have all been at attractive rates for tenants in both office and industrial markets.”
There have been some bright spots in 2008, one of them a new mixed-use development located at Telegraph and Square Lake Roads called Bloomfield Park. Oliver/Hatcher Construction is constructing 180,000 square feet of office and retail space for the project.
CBRE is the leasing agent for the office and retail space in the 80-acre development, which will include office buildings, residential property, recreation parks and a hotel. Completion is expected in October 2009.
[Editor’s note: construction on Bloomfield Park has been halted because of the current credit crunch.]
CBRE is also leasing space for Baluster Park in Troy, an eight-building complex with over 1.2 million square feet, and is the leasing agent for the Southfield Town Center, home to CBRE offices. Redevelopment of the Steelcase campus in Grand Rapids, along with several out-of-state projects, were highlights this year for Oliver/Hatcher.
Other positives for 2008 include only a slight downturn in commercial lease rates in Michigan, says Latessa. “Additionally, nearly 40 life sciences companies have now received loans through various state initiatives to keep employees and talent in the area.”
Both experts agree that 2009 will present its share of challenges. “The credit crunch is causing many projects to be postponed or cancelled,” says Hatcher. Adds Latessa: “Without lenders poised to loan funds, all economic growth, job creation and consumer credit and confidence halts.”
Still, there’s room for optimism. Abundant natural resources, a growing and improving diversity of Michigan companies and products, along with a highly skilled workforce, strong educational institutions and real estate bargains, give both Latessa and Hatcher reasons to be upbeat. “Simply stated, Michigan offers everything a company needs to be successful,” concludes Latessa.