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DETROIT-A major commercial real estate broker is predicting stronger activity for the remainder of the year in the Detroit retail real estate market. According to a recent report by Marcus & Millichap, retail property prices should post gains in the second half of the year.
"Detroit's retail market is faring well this year with solid tenant demand, especially in the metro's thriving suburbs," says Steven R. Chaben, first vice president and regional manager of the firm's Detroit office. "Dollar volume for large-ticket assets will remain robust as institutions continue to seek acquisitions in the Detroit metro."
Marcus & Millichap says Detroit area developers are on track to deliver 2.4 million sf byyearend. Completions will be 60% higher than the 1.5 million sf built in 2004. Expanding big-box discount and supermarket chains will occupy more than half of the sf being delivered this year, the broker says.
According to the report, vacancy is on course to improve 20 basis points to 8%, while asking rents are forecast to rise 2.4% to $16.39 per square foot by the end of 2005. Vacancy will ease as growing tenant demand offsets the increase in construction activity. With demand for space rising, owners will be able to increase rents at the greatest rate in five years.
The report also states that investor interest in single-tenant net-lease properties remains strong in the face of a limited inventory of for-sale product. During the first quarter of 2005, the median price registered $123 per sf, which is nearly equivalent to the median for 2004.
Prices for full-service and fast food restaurants are well above the marketwide median, with a Big Boy in Flat Iron selling for $327 per sf. Freestanding properties accounted for nearly 60% of the total number of single-tenant transactions closed during the past 12 months and traded at a median price of $120 sf.
Multi-tenant properties have shown their popularity in early 2005 with both private investors and institutions participating in the market. Strip centers continue to be a popular investment, with the median price increasing 43% to $106 per sf over the past 12 months. Quality assets in the most desirable locations, however, can capture prices of $200 per sf.
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