Evan Lyons, Encore Real Estate Investment Services
Looking back to 2022, Detroit’s economic performance last year mirrored the city’s tenacious Detroit Lions football season. Both were riddled with doubt, plagued by volatility and fueled by guts, but beyond all expectations, both proved their naysayers wrong when the clock ran out.
Just as the Lions stunned doubters by finishing the season 9-8 and beating divisional rivals the Green Bay Packers, Detroit is on track to post 5.8% national job growth in mid-2022 at an annual rate of 8.6%. It exceeded expectations by surpassing . over a year. Job and wage growth is expected to continue for the next few years, according to a University of Michigan study.
The city strengthened its “line of attack” by opening new stores and building new buildings throughout the city centre. Stadiums and parks were once again filled with events and programs to entertain spectators. For example, Belle Isle Park’s infamous giant overwaxed slide gained notoriety last year for going viral and driving riders who dared to try the ride.
Detroit also earned points for visits to leisure and hospitality establishments over the last 12 months. From June 2021 to he May 2022, the number of visits increased by 50% compared to the same period last year.
Detroit Lions coach Dan Campbell kicks off the year with high hopes for his team’s performance next season on HBO’s hit TV show Hard Knock’s, a hit HBO TV show spotlighting the Lions’ grit As I said, I described a similar outlook. of the Detroit Leasing Market in his 2021 Detroit Retail article in this publication. In fact, the area has about 4 million square feet leased in 2021 and another 2.9 million square feet in 2022, so the absorption of retail leasing is immeasurable.
The neighborhood center took the lead with a lease of nearly 1.1 million square feet as Jamal Williams set a franchise record for rushing touchdowns in a single season. Continued demand for properties in key areas of the city has squeezed vacancy rates to his 5%, the lowest ever for his Detroit area.
Strategies are also being developed for suburban retailers, consumers, apartment dwellers and commercial investors in the greater Detroit area. The largest economic recovery across Southeast Michigan has been concentrated in suburban areas such as Oakland County, outpacing the urban core. Wage growth in the county has stabilized, and as of February 2022, the county’s unemployment rate was 3.8%, down dramatically from the 19.7% level reached in May 2020.
Another strong Southeast market, known to many as Ann Arbor at the University of Michigan, is also seeing steady growth. In Ann Arbor, retail rents have risen about 2.4% over the past 12 months, while vacancy rates have changed little but stood at a historically low 3.7%.
capital market activity
Capital markets have cooled since 2021, but continue to thrive with revenue of $861 million over the past 12 months, well above the five-year average. During the same period, the cap rate for sales in Metro Detroit was 45% of all deals and he was 6-8%. The higher cap rate environment offered in core and suburban markets has attracted domestic investors. Of his 1,000+ deals posted, approximately 68% of purchases were from national buyers and 31% were from local buyers.
Just as the Lions forced the Packers to compete in their own backyards on New Year’s Day, the national interest in Michigan and Midwest markets has prompted local buyers and investors to keep buying prices for both domestic and local buyers at an initial I was forced to pay because I crossed the Time is about 5 years. This competition from the national pool of buyers will continue as investors seek demand yields above those in the bond market and further strengthen investment sales that support Michigan’s commercial property prices.
CBRE ($80 million) and Encore Real Estate Investment Services ($70 million) were the top two investment distributors to complete deals in Michigan, according to CoStar.
The home sales market has failed significantly in 2022 as a result of the Federal Reserve rate hike. Thankfully, residents seeking new housing found press after the apartment blitzkrieg. Most of them opened doors to entire regions. The area developer has delivered 540 units in the last 12 months. This represents 83% of the total units delivered in the last two years. Annual rent growth has slowed to 2.9% in recent months, down from his all-time high of 10% in early 2022, but today rents are 49.9% higher than he was a decade ago. % higher.
Developers looking to sell when occupied are still in luck. Despite downward pressure on prices from rising interest rates over the past 12 months, nationwide demand for multifamily housing is essentially flat, holding an average cap rate of 5%, but still below the average Detroit-area cap rate of 6.1%. is below
In summary, the naysayers ruled out the Detroit Lions last season, only to see them raise their roar of vengeance. Detroit real estate speculators shouldn’t be surprised to see the same thing happening on the commercial investment side. With a strong backfield in place, the city of Detroit and its suburbs still have lucrative deals for astute newcomer real estate investors and developers.
Evan Lyons is Senior Director of Encore Real Estate Investment Services. This article originally appeared in his February 2023 issue of Heartland Real Estate Business magazine.