An influx of investors

While a more favorable national marketplace has contributed to rising prices, one of the biggest factors in the ongoing Midwest resurgence is a significant influx of investors that are targeting the Midwest and moving into several regional markets in force.

Lower prices—especially when compared to larger coastal markets—have highlighted the region's investment potential, and savvy players are taking advantage. While the biggest return-on-investment opportunities have come and gone with the post-recessionary recovery well underway across the region, the investment climate in the Midwest remains favorable. Primary and secondary market differences have created a wide range of diverse options for different investors. A primary market like Chicago, for example, presents abundant opportunities for stable, more modest returns for investors who are leery of risk and consequently more amenable to a lower cap rate. Secondary markets—both inside and outside the urban core of cities across the region—still provide opportunities for more significant returns.

Individual markets

Currently, one of the most fascinating Midwest markets is Detroit, where sales and acquisitions have been surging as a direct result of increased international activity. While international investors have been moving into the Motor City market in earnest, activity in the immediate downtown area remains noticeably slower than in those areas just outside of the urban core.

There have been a large number of commercial real estate transactions in Detroit's Midtown area. With more affordable rental and parking rates, Midtown offers a downtown vibe at a more accessible price point, and investors have been picking up on this trend and moving to capitalize on value-driven opportunities.

You have to go even further from downtown to find the area of highest sales activity in Chicago, as the Windy City's suburbs have become the area where more properties have been changing hands as of late. The price tag for properties in Chicago's downtown has increased to the point where true opportunistic investment opportunities have become difficult to find. In Columbus, Ohio, on the other hand, urban investment opportunities are still abundant, and activity is correspondingly vigorous downtown.

Of note, there is a dearth of new office development in all three of those cities, resulting in a commercial real estate market where the renovation and adaptive reuse of older buildings has emerged as a significant factor. Vintage properties and renovations have been changing hands with increasing frequency in the last 12-24 months.

The cool factor

While some of the credit for an increasingly active Midwest commercial real estate marketplace goes to the slow-but-steady economic improvements we are seeing on the national level, the region has been greatly helped by a perhaps unexpected and—to regional owners and investors—very welcome development: the Midwest is cool again.

Not only is the Midwest a popular new destination for tech firms, but younger innovators and entrepreneurs are coming to the region in much greater numbers. Artists are also flocking to the Midwest, drawn to an exploding arts scene and a comparatively affordable cost of living. While technology and the arts are on the increase in a number of markets, Detroit's burgeoning tech sector and growing artistic communities are especially noteworthy.

Property valuing

While there is no substitute for a strong market, Midwest owners are doing their part to enhance sales by making strategic property improvements. For example, Farbman's property at 79 W. Monroe in Chicago has upgraded the lobby area and revitalized the flooring in the common areas. The result is a lobby space that feels entirely new. At 200 W. Monroe, the completion of a new conference center has garnered headlines, but a lobby renovation, along with a restroom facilities upgrade and a range of new amenities (including building-wide Wi-Fi) have done their part to greatly improve the aesthetic and experiential appeal of the space.

Building improvements do not have to be limited to interior upgrades though. The 220,000-square-foot Southfield Centre in Metro Detroit has benefited greatly from improved exterior lighting, a small-but-significant change that dramatically alters the visual profile of the property.

As Midwest markets become more competitive, office and industrial properties will need to deliver extra amenities and assets to remain relevant in an active marketplace. At 27777 Inkster Road in Farmington Hills, Michigan, for instance, the 275,000-square-foot Class A property offers unparalleled improvements including generator power for the entire complex, a 'plug and play' open office environment and visible signage from Interstate 696. The building also offers ample parking, including the ability to provide a 6 per 1,000 parking ratio for 50,000- through 120,000-square-foot users.

While the Midwest office and industrial market continues to strengthen, opportunistic buyers who can move quickly will still find themselves at an advantage. Even in an increasingly competitive marketplace, there are still a significant number of investment opportunities out there, and the most active (and successful) developers and investors continue to target properties where there is room to realize real value in the mid-to-long term.