Marcus & Millichap says the Detroit retail market is hindered by a sluggish economy; however, the economy appears to be stabilizing and modest improvement is expected during the second half of the year. Low scores for rent, employment and household growth were factors in the city's ranking near the bottom of the index.
Marcus & Millichap does say Detroit will maintain a modest retail property transaction volume in 2004, albeit at levels higher than those recorded in years prior to 2002, and prices will continue to favor sellers. "In 2003, sales velocity fell 40% from the 2002 peak with 103 properties changing hands," comments Steven R. Chaben, vice president and regional manager of Marcus & Millichap's Detroit office. "This year, single-tenant net-leased properties continue to garner the greatest interest and are trading for cap rates in the 6.75% to 7.75% range, followed by big-box power centers and grocery-anchored centers. Buyers will continue to comb highly coveted Oakland County, along with northern Macomb County and Wayne County, for opportunities."
The report indicates the following for the Detroit retail market in 2004:
* Detroit's economy has stabilized, and modest improvement in the region's labor market is expected this year.
* Total payrolls are expected to expand by 0.9 percent in 2004, which equates to the creation of 18,400 jobs, the majority of which will be in the professional and business services and health and education services sector.
* Retail construction levels are expected to decline.
* In 2004, only 1.4 million sf of space is expected to come online, down 15% when compared to last year's deliveries.
* Detroit's fragile economy and weak demographic trends will continue to dampen retail space demand in 2004. As a result, Detroit can expect only modest improvement in vacancy.
* Vacancy is forecast to improve 30 basis points in 2004, dipping below 8% for the first time since 2001, to 7.9%.
* The average asking rent is expected to increase 1.5% in 2004, to $15.90 per sf.
* Look for South Oakland and Macomb counties to outperform the average and post rent growth of 3.5%.
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