Richard Broder President Broder & Sachse Real Estate Services

During the past year in Detroit, retail vacancies have continued to climb, especially in low quality properties. Vacancies increased due to new project completions, a low level of demand and some retailer failures. “During the near term, vacancies will continue to increase,” says Richard Broder, president of Farmington Hills, Mich.-based Broder & Sachse Real Estate Services.

This increase in vacancies also means a decrease in opportunities for rental growth. “In the Detroit market, rents have stayed relatively flat, increasing by only 1 percent from last year’s numbers,” Broder says. “On the other hand, high-end or high-quality developments are enjoying good occupancy and growing rents.” Well-located developments with small shop space are enjoying high occupancy rates and achieving high rents, especially in outlot strips adjacent to power centers. Also of note, there seems to be a proliferation of branch bank expansion in the marketplace.

“Vacancy is greater in older centers with obsolete space depths or unrenovated facades, thereby forcing a significant erosion of rents,” Broder says. The overall vacancy rates are expected to peak at more than 9 percent later in 2003 before stabilizing.

There are a number of new retail developments in the Detroit area market. In Novi, PLC Commercial is developing Fountain Walk, a 750,000-square-foot retail center, with Galyan’s Trading Company, Cost Plus World Market, Vans Skatepark, Sears Great Indoors, Buffalo Wild Wings, Bamboo Club, Chuck E. Cheese and Emagine Theater Novi. In Birmingham, the Palladium project contains a movie theater, a Bucca di Beppo Restaurant, a Tower Records and a local upscale restaurant. In South Lyon, Kojaian Development is currently developing Lyon Town Center and Lyon Crossing anchored by Wal-Mart, and Grand Sakwa has developed a shopping center in Farmington Hills, anchored by The Home Depot and Sam’s Club. The development of Shelby Creek in Macomb County and Commerce Crossing in Oakland County with a new Costco Wholesale Club are also notable projects.

The Interstate 275, Interstate 96 and Interstate 696 corridors in Oakland County are the hottest growth areas in the Detroit metropolitan area. More than 1.5 million square feet of retail space has been built in this area during the past year. Northern Macomb County is continuing to see strong development. “These areas are in the path of growth for new housing,” Broder says. Cities such as South Lyon, Novi, Wixom, and Northern Macomb County should continue to outpace the rest of the area.

Some of the more active retail developers in the area include Kojaian Development, Burton-Katzman Development Co., Grand Sakwa, Ramco Gershenson Properties Trust and Lormax Stern.

Retailers new to the area include Trader Joe’s, Baja Fresh, Galyan’s Trading Co., Sears Great Indoors, Noodles, Potbelly Sandwich Works, Bravo, Mitchell’s Seafood, Longhorn Steakhouse and Arhaus Furniture. Lowe’s Home Improvement Warehouse continues to expand in the market, but otherwise there is little activity by large space users new to the market. National chains such as Target, Kohl’s, Costco and Wal-Mart are still expanding in the Detroit area.

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