In a recent question-and-answer session, David Friedman, president and chief executive officer of Farmington Hills, Mich.-based Friedman Integrated Real Estate Solutions, discussed his outlook for the Michigan commercial real estate market and the re-development efforts currently underway in the city of Detroit.
How is the Detroit metropolitan commercial market holding up today?
Friedman: It is hardly news that our state was perhaps the hardest hit market during this recession. The Detroit office and industrial markets took quite a beating over the last couple of years, but we’ve weathered the storm and are finally seeing slow and steady growth in the office, industrial and multi-family markets. The overall market, compared to the last couple of years has picked up from both a leasing and selling perspective. Our office market witnessed the largest single quarter gain in absorption since 2005 this year and large blocks of industrial space are experiencing considerable leasing activity as automotive suppliers and manufacturers continue to fuel the nation’s recovery. While we still have a ways to go, we’re now seeing positive indicators to support the view that the worst is behind us as we continue a path of slow, but steady growth.
Why do you think you have started to see this increased activity?
Friedman: It has a lot to do with the economy in general and the changes we’re seeing take shape downtown. For starters, much of what the rest of the nation is experiencing right now we experienced in 2005 with the decline of the automotive and manufacturing industries. We were the first to feel the impact of the recession and now we are the first to feel some semblance of a recovery. Companies that sat tight with their expansion plans for the past 2 years are beginning to make moves again and for the first time in many years, our state is leading the nation’s economic recovery as automotive and manufacturing production has grown steadily over the year. Bloomberg just ranked Michigan’s economic health as 2nd best in the nation, a surprise to many, but when you consider how our strong manufacturing base and a revised tax structure that positions our state to compete with others for new business, it’s not a surprise at all. This year was a real wake-up call for many that stood on the sidelines the past few years – companies are now realizing that you need to start spending again if you want to grow – and the market’s increased activity appears to reflect this realization.
The changes you indicated in downtown Detroit, what impact does that have on the market?
Friedman: Perhaps the most significant change our market has witnessed this past year is the momentum building in Downtown Detroit. It’s changed the landscape of the office market and generated a much needed ripple effect in residential and retail development in the region. Detroit’s Central Business District has historically been one of the most challenged real estate environments, but we have close to 1 million square feet of office space in the process of being occupied in the CBD this year alone – a very significant amount of absorption and a sign that there is a new wave of business coming downtown. While many midsize and small companies have taken downtown space for recruiting reasons or to be near clients and the automotive industry, there are investors with a much larger vision for the city. This past year we’ve assisted Quicken Loans in purchasing over 1.7 million square feet of commercial office space downtown. The company’s founder and Chairman Dan Gilbert has made significant commitments to revitalizing the city’s business district in an effort to transform downtown Detroit into a work, live and play epicenter. He along with other major companies, such as Blue Cross Blue Shield have relocated thousands of employees downtown, and recruited other companies to join them. This new influx of residents downtown have pushed the city’s apartment buildings to near full occupancy, sparking developer interest in a variety of new residential projects downtown to meet the current demand. This in turn has fueled the demand for retail – over the last six months we’ve witnessed two large grocery chains, Whole Foods and Meijer, announce plans for Detroit locations. Even smaller retailers that once balked at opening downtown spaces are re-considering as several retail “pop-up” concept stores are filling the void in downtown retail to much success. It’s a pattern you see in any city that is in an upswing, and we’re very excited to see it finally happen in a city like Detroit.
So with all these changes what do you see for the metropolitan Detroit market in 2012?
Friedman: I think we can expect more of the same in 2012. The office and industrial markets are going to continue their trend of slow and steady growth though we’ll continue to see maturity defaults and distressed assets in the market. Automotive suppliers, the health care industry and alternative energy industries are going to push the market’s growth in the immediate future, but we don’t anticipate a surge in values – the market is stabilizing. I think for many, considering what the Detroit Metropolitan market has had to endure, this comes as very positive news.