HEARTLAND SNAPSHOT, FEBRUARY 2008

Detroit Retail Market

While the Detroit retail market is still showing signs of a slowdown, those that remain active in the market are taking slow, deliberate steps to produce growth in the sector.

“Retail development has slowed a little bit, but the ones that are continuing are smarter developers that realize you can’t build a shopping center mid-block without an anchor. You have to build something that is going to stand out — something premier,” says Matthew Berke, vice president with The Beale Group, a Southfield, Michigan-based real estate brokerage firm.

Projects that are being constructed are utilizing a more creative approach to development as a way to attract retailers and consumers. Live/work developments, especially those with a more downtown feel, are becoming a popular choice for retailers.

The recently opened Mall at Partridge Creek, located in Clinton Township, is one such example of this new style of shopping center. The open-air lifestyle center, which was developed by Taubman Centers, includes 640,000 square feet of retail space, and is anchored by Nordstrom, Parisian and MJR Theatres. The center was designed to be pedestrian and dog-friendly, and features landscaped gardens, walking paths, fountains and a children’s play area.

On the outskirts of the metro area in Hartland Township, Ramco-Gershenson Properties Trust is developing Hartland Towne Square.  The 550,000-square-foot power center is located at the corner of U.S. Highway 23 and M-59, and is slated for a spring 2009 completion.

Current development activity is also occurring evenly in all of the submarkets, with a slight edge possibly going to the northeast, where The Mall at Partridge Creek is being developed, and the northwest, where Hartland Towne Square is being developed.

With greenfield space in the city at a premium, new development is leaning toward the purchase of properties solely for the land they inhabit.

“You have a hard time finding exactly what is needed in an existing building so, more often than not, you see them tear down and start over,” Berke says.

Currently a small 16,000-square-foot retail project is being developed at the corner of 12 Mile and Telegraph in just such a way. The land contained two older, obsolete buildings, which are being demolished to make way for the construction of a new retail center. As is usually the case, submarkets further away from the city are seeing more greenfield development.

The city is also seeing a wave of smaller health clubs moving into the region, including Snap Fitness, Anytime Fitness and a 5,000-square-foot Powerhouse Gym concept. These smaller and mid-size gyms are attempting to take a share away from the big-box gyms such as Bally’s, Lifetime Fitness and newcomer L.A. Fitness that have inhabited the area up until now.

“Over the last 2 years, vacancy rates have crept up, but retail has always been a little bit better than some of the other real estate sectors,” Berke says. “I believe — just from what I’ve noticed — that it has plateaued. We’re all hopeful that the vacancy rates are going to start decreasing.”

Berke adds that rents have adjusted to the increased vacancy rates by decreasing. Landlords previously were offering more incentives, but that has leveled off. Rates are still not at previous levels, but people in the Detroit market remain optimistic that things are on the upswing.

But with larger centers under development and a sector that has lagged for the past couple years, the ability of the market to absorb the new space coming online comes into question. However, Berke is confident that the market will be able to absorb these new centers under development. Many of them are upscale centers that are coming online with strong tenants already place.

“Once the residential growth picks back up, you’ll see the market expanding again,” Berke says.

The Detroit Economic Growth Corporation has stepped up efforts to foster growth in the sector, especially from the small business side of things. After a lengthy downturn in the real estate sector, Detroit is due for an upswing.

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