ADVERTISEMENT DETROIT BOASTS NATIONALLY LOW MULTI-TENANT VACANCY, WEATHERING NEAR-TERM CHALLENGES Motor City retailers faced sev-eral headwinds in 2023, including the impacts of persistently high in ation and the United Auto Workers strike. Despite these ob-stacles, the retail sector continues to demonstrate resilience. As we move into 2024, the metropoli-tan area boasts the second-lowest multi-tenant vacancy rate among Ashish major U.S. markets, surpassed only by Salt Lake City. This strong Vakhariya performance well-positions the Marcus sector to withstand emerging & Millichap pressures. Detroit’s overall vacancy rate is expected to rise by a minimal 10 basis points in 2024, lifting the metric to 6 percent. Construction continues to be measured as 455,000 square feet of new retail space is expected in 2024, expanding the metro’s inventory by just 0.2 percent for the second year in a row. Nearly 50 percent of the space underway for 2024 can be classi ed as multi-tenant, creating some supply-side headwinds for the segment going forward. Some additional pressure may extend from Livingston County-West Oakland, Macomb and South eld as these areas claimed the largest share of the 2024 pipeline. South eld and Macomb, in particular, are on track to end 2023 with the metro’s highest local vacancy rates. Detroit’s multi-tenant vacancy of 2.8 percent in September sharply contrasted with the metro’s sin-gle-tenant rate of 6 percent. A higher-than-average volume of single-tenant space is available in the market, with only Chicago and Los Angeles record-ing greater amounts of vacant square feet. While new supply pressure is modest, loosening vacancy in both sectors will add to the total amount of avail-able space in the upcoming year, adding downward pressure to marketed rents. The average asking rent in Detroit will fall for the second straight year in 2024, dipping down to $14.90 per square foot amid a slight pullback in re-tailer demand for space. Slowing demand in some higher-cost submarkets like South eld, Royal Oak and Bloom eld will contribute to this downward movement. Pressure is focused in the single-tenant sector, given higher vacancy, offsetting gains among the smaller multi-tenant sector. Overall, Detroit’s average asking rent will still end 2024 nearly 8 per-cent higher than the 2019 mark. Despite several notable retailers including Bed Bath & Beyond, Party City, Tuesday Morning, and, most recently, Rite Aid, ling for bankruptcy and closing stores, the well-located real estate has been absorbed by a variety of off-price retailers, dol-lar stores, discounters and other growing chains. Ross Dress for Less, a national off-price retail chain, made its debut in the Michigan market with several store openings in the metro Detroit area. Sheetz, one of the fastest-growing gas station and convenience store chains, con rmed plans to open its rst store near Detroit Metro Airport, with additional aggres-sive growth plans for the state. The regional mall airspace continues to be dy-namic and a tale of two markets. In South eld, the Northland Mall redevelopment has started to take shape as a 160,000-square-foot Costco Business Cen-ter will anchor the $403 million mixed-use project currently underway. This will be the rm’s rst re-tail warehouse in Michigan. To the north in the heart of Macomb County, the $1 billion transformation plan for Lakeside Mall in Sterling Heights has been approved. Much of the existing mall will be demolished to create a Town Center consisting of apartments, retail space, res-taurants, a hotel and recreational amenities. Meanwhile, Somerset Collection, the luxury mall in Oakland County, continues to perform well. Balenciaga and Breitling, globally recognized, high-end retailers, are the latest to choose Somerset Col-lection as their home. Higher borrowing costs and an uncertain eco-nomic environment weighed on transactional activ-ity in 2023 following a record 2022. Trading activ-ity through the rst nine months of this year was generally in line with gures from 2014 to 2016. With continued tenant demand and the prospect of increased inventory, the market should see greater transactional velocity in 2024. Out-of-state buyers, in particular, could nd appeal with Detroit’s cap rates, which are some of the highest on average across major Midwest markets in the mid-to-high 7 percent zone. Ashish Vakhariya is a senior vice president of investments with Marcus & Millichap in Southfi eld, Michigan. MERCHANTS CROSSING | JACKSON, MI A HISTORY OF SUCCESS BUILT FOR THE FUTURE PINE RIDGE SHOPPING CENTER | NOVI, MI For over 50 years, we’ve helped our clients create and preserve wealth for today, tomorrow and generations to come. Let us use our unique combination of expertise and access to help you maximize returns and get more out of your investments. Steve Chaben Detroit Senior Vice President/Regional Manager (248) 415-2600 | Steve.Chaben@marcusmillichap.com WOODHAVEN VILLAGE SQUARE | WOODHAVEN, MI Real Estate Investment Sales Financing Research Advisory Services MarcusMillichap.com Heartland Real Estate Business • December 2023 • 23
Heartland Real Estate Business December 2023: Page 23
