Do we have a space for you? You better believe we do.
Concerns over the global situation and the domestic economy are still present this year. A continued rebound in the economy, including increased business spending and stronger job growth, will be necessary to further drive the commercial real estate demand.
As the Great Lakes economy goes, so goes commercial real estate across the region. In our area some segments of commercial real estate seem to be holding their own, while others are stumbling…
The national office market recovery is underway, although the pace of the recovery will be slow and geographically uneven. In the Great Lakes Region, the office markets began 2005 in the doldrums with most office markets over-supplied. Despite the glut in available space, investor demand for stable, fully leased Class A "trophy" buildings was strong.
Mike Tarnow, Northern Michigan Real Estate Consultants, says office buildings fall into three sub-categories: quality, age and design.
Tarnow believes office space absorption in this area generally continues to be weak, especially Class C space.
Class A buildings are typically your best quality and that group is reasonably healthy right now. Most all of the space that has been build over the last decade, has been absorbed. Class B, similar to class A, but a little less quality and outside the central business district, is also reasonably well occupied. However, Class C buildings, more suburban in location, are suffering significant vacancies at this time. It will take another year or two for that space to be absorbed.
Bob Brick, Re/Max Bayshore Properties, used humor to describe the dilemma of the local office situation. "Typically, we have enough supply that you could find what you wanted down at Alice's restaurant," he joked.
Jim Schmuckal, Schmuckal Realty, says there's substantial office space from 1,000 to 25,000 sq. ft. units for lease in the area. The greatest amount of space available is up to 3,000 sq. ft. However, the whole market has a surplus. The problem isn't just a matter of pricing; if there aren't adequate users, prices are immaterial.
"That's basically what we have at this time. There are not enough users for all of the space available," Schmuckal said.
Nationally, the industrial market continues to stabilize, marking the second consecutive year that demand exceeded new supply. However, even though the Grand Traverse area has its own micro-economy, separate from Michigan's depressed economy, Michigan's problems still spill over into the economy here.
"Michigan is affected by the depletion of the industrial base. Job out-sourcing has definitely hurt Michigan," Schmuckal pointed out. "In turn, the job out-sourcing has definitely affected our area, which creates more vacancies and reduces the demand in the industrial sector for new and used buildings." Currently, there is a substantial supply of industrial sites.
About 10 years ago, there was a distinct shortage of industrial zoned land and developed industrial lots, as indicated by Tarnow. Now, some industrial buildings have been listed for sale for years, brand new ones. There are portions of the industrial market where entrepreneurship has been working and is healthy. But, the larger picture, because of the changes in the automobile industry and the off-shore production of products, shows the manufacturing segment of our local industrial economy lacking.
"The invisible industry is internet, high- tech businesses," Brick said.
High-tech companies have had some growth here, where the owner gets to choose where his company is located. If transportation is not a issue, the owners are more likely to choose northern Michigan for the quality of life.
Nationally, of the four core property types, retail is the strongest in terms of tenant demand, as American's propensity to spend keeps the retail market growing.
The retail segment is "obviously growing because we're a regional center for retailing," Brick said. "But, the growth area is all related to zoning."
Retail real estate is thought to be fairly healthy, says Tarnow, who started doing appraisal work full time in 1975. However, he feels that we are beginning to see some turn over in the space that was built in the late 1990's. Nevertheless, there aren't many vacancies. Although it's fairly normal for stores to come and go, there aren't any significant retail vacancies downtown, either.
"Retail space is in a better position than any of the other commercial markets," stated Schmuckal, who has worked for 34 years in the real estate business; 15 years specializing in commercial. "There's less available space for lease and/or for sale. You'll find that the major corridors are mainly filled."
Current national hotel construction is relatively broad, but has lately focused on luxury and mid-priced projects.
"We're seeing mega resort centers," said Brick, in real estate since 1973. "Two more Great Wolf Lodge type concepts are being purposed for the area around Traverse City, one in Elmwood Township and another at Chum's Corners."
Nationally, returning job growth particularly favors the multi-family market. Stronger job growth in 2004 helped boost multifamily net absorption. The multi-family market can be broken into two categories, condominiums for sale and rental units, which range from duplexes to multi unit apartment buildings.
"Multi-family is doing well, as long as it is not being over built," noted Schmuckal. "The question to be answered is whether all of the projects that are under construction now will have users."
In the last few years, there's been tremendous growth locally, with several new projects under construction. There is limited zoning for these complexes. Typically, you will find that the higher densities are in a location where there is municipal sewer and water and where the zoning has been master-planned for their presence.
"Multi-family, industrial, office and retail markets all need infrastructure," Brick pointed out. "They all need electrical power, gas, sewer and water. Most township governments don't have the economic base to put in their own sewer systems. Sewer is necessary for any multi-family complex to get any density."
Generally, developers are going to prefer whatever type of real estate seems to be in a growth cycle. "Developers, currently, are actively pursuing segments of the residential market," Tarnow stated. "There are significant numbers of apartments and condominiums under construction at this time, from the smaller units along Hartman Road, to the very expensive units on East Bay." BN