Detroit Industrial: Absorption gains momentum

As we approach the end of the 2011, there are clear indications of an improving economy. Although the rate of commercial property foreclosure is still high in metro Detroit, the rate of absorption of foreclosed properties has risen appreciably. They are not sitting on the market like they did the previous 24 months.

One may say that not only has the market turned a corner, but also that the community has genuine faith in commercial real estate investing.

Although it may be time-consuming for local businesses to secure financing, traditional lending sources are far more accessible than they were in 2009 and early 2010, albeit some more than others.

The Small Business Administration (SBA) programs are propagated frequently, and the qualification process is not as cumbersome as in years past. Businesses that have taken advantage of the improved lending environment vary, and include automotive parts suppliers, manufacturing businesses and distribution companies.

Many area businesses are unsure about the near future. Considering what Detroit has endured during the past three years, this is to be expected. Although cautious, these same businesses are moving forward in a confident manner. The bottom line is activity has noticeably increased.

More businesses are interested in purchasing and leasing properties, and more are in the market touring sites. While the site selection process may linger, and the average life cycle for each deal is slower than usual, overall transaction volume has increased.

According to research analysts at L. Mason Capitani/CORFAC International, the metro Detroit industrial market enjoyed a net absorption of 2 million square feet in the third quarter, the third consecutive quarter of positive absorption. With an overall inventory of nearly 600 million square feet of industrial property, the vacancy rate has decreased to 12.8 percent.

Some of the larger deals include Cabot Real Estate leasing and moving into 336,000 square feet of warehouse distribution space in Brownstown, and YF USA Automotive Systems purchasing and moving into 221,000 square feet in Harrison Township.

One contributing factor to our improving local economy is the availability of financing. In 2009 and early 2010, most lenders had no interest in providing a loan commitment to anyone who was automotive-based.

There is still a strong push on the leasing side. Many landlords are doing their best to buy time until the market fully recovers. Asking rates on average have plummeted to just under $4 per square foot triple-net, down roughly 20 percent from where they were five years ago.

Free rent and low rates are almost automatic. Landlords that are financially capable are quick to make landlord improvements or offer attractive tenant improvement allowances. 

It is difficult to determine if Detroit is witnessing a significant recovery. There are several prognosticators that will argue one way or the other. But it is clear that conditions are improving.

— Jason Capitani, CCIM, is principal and executive vice president of Troy, Michigan-based L. Mason Capitani/CORFAC International.

©2011 France Publications, Inc. Duplication or reproduction of this article not permitted without authorization from France Publications, Inc. For information on reprints of this article contact Barbara Sherer at (630) 554-6054.

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