Greater Lansing’s Commercial Real Estate Market Making a Comeback
“It’s a lot busier than it was a year or two ago. We appear to be coming out of the doldrums,” said Adam Whitz, owner of the ReMax Commercial Group. “But the progress isn’t uniform across the Lansing region. There is an oversupply of office space. South Lansing into Holt remains depressed. Retail is better, but can be spotty.”
“Our company is doing very strong business,” said Jim Vlahakis, principal and president of NAI Mid-Michigan/TMN Commercial. “We’ve seen an enormous bump in business. I see the first quarter of 2015 pretty much where we are today,” an assessment he based on his company’s pending sales reports.
The buoyant outlook is tempered by the collapse of the commercial real estate market during the recession, and full recovery is still a few years off.
“Values are still lower than they were. Banks are still a hurdle,” said Vlahakis. “But we are starting to do deals.”
Improvements in the Lansing market finally reflect the national trend, said Tricia Foster, senior managing director and COO of CBRE|Martin and CBRE|Grand Rapids. “For our company, growth has been significant in sales during 2014 and leasing activity is up in all specialties.”
Foster cited a growing economy, job growth, consumer spending, increased housing starts and low interest rates as factors propelling commercial sales and leasing. “I would expect 2015 to be just as solid and, as we head into 2016, we will need to watch interest rates and how geopolitical matters influence the economy,” she added.
Area real estate firms report that all three of the commercial market segments — retail, office and industrial — are strengthening, particularly with class A properties.
“There is a shortage of good large space,” said Van Martin, president and CEO of CBRE|Martin and CBRE|Grand Rapids. “If you are trying to find 15,000 to 20,000 square feet, it is difficult. For 4,000 to 5,000 square feet, that portion of the market is more competitive.”
There is, in fact, a glut of secondary office space in the region, Vlahakis said. “There are millions of square feet of space open in the tri-county before rates trend up,” he added. “The improvements in the commercial sector, while steady, still have not reached pre-recession levels.”
An eight-year analysis of the Lansing market by the CoStar Group, Inc., a national provider of commercial real estate information and analytics, found that Ingham County office leasing prices peaked in 2007 at approximately $15.25 per square foot per year and in Lansing peaked at approximately $14.50 per square foot in 2006. Prices declined steadily as the recession worsened to about $13.50 in the county and $12.75 in the city.
“If you look at the sub markets, they are performing well,” Foster said. CBRE|Martin’s latest Greater Lansing MarketView report on retail activity identifies the east and west quadrants as the region’s strongest, which show vacancy rates of 10 percent and 9.4 percent respectively. Leasing rates for east side properties range from $10 to $25 per square foot; in the west, they are $8 to $16 per square foot.
For industrial space, CBRE|Martin’s latest industrial MarketView report identified the north market as the strongest that show a vacancy rate of 5.2 percent and lease rates between $5 and $7 per square foot. The need for climate controlled large boxes of industrial space with high ceilings and numerous bays remains high. This could be an area where new product comes on line in the future. The best market for all commercial categories, Martin and Foster added, is class A office space in Lansing’s central business district, where an office in a high-rise with an unobstructed view could lease for as much as $26-$28 per square foot. According to CBRE|Martin’s latest office MarketView report, the vacancy rate for premium downtown properties is 1.8 percent. For class B properties the vacancy rate is 24 percent and for class C space it’s 47 percent.
The various grades and shades of properties in all categories make broad comparisons difficult, area brokers say. And their success in different sub markets like U.S. 127 at Lake Lansing Road or I-96 at West Saginaw shapes their market-wide perspectives.
But there is general agreement that the area struggling most is the southern corridor, Cedar Street, Pennsylvania Avenue and Martin Luther King Highway. “The south sub market seems to be suffering the most. It’s there that values have dropped and the vacancy rates are absolutely the highest,” Vlahakis said.
Holiday season sales should be watched carefully as retailers and owners of retail centers are finding the “bricks and clicks” world now a reality. Retailers are developing strategies that incorporate mobile, online and brick-and-mortar components, while retail owners are pushing foot traffic with entertainment venues, added Foster.
“Greater Lansing is finally starting to see vertical development, something that has not been prevalent since pre 2007,” Foster said. “This trend continues in Grand Rapids and Detroit.”
Locally, Midtown and the Outfield development projects have launched and with the recent announcement of the Red Cedar Golf Course redevelopment, the Michigan Avenue Corridor will transform the area. The Heights of Eastwood is also under construction and several other developers are evaluating opportunities to build in the region.
The changing demographics of the workforce demand urban work and lifestyle environments that offer amenities and walkable entertainment and services. “Providing urban grocery options and efficient mass transit are essential to develop for any environment that plans to meet the needs for residents and the work force,” said Foster. “Balancing this demand with existing suburban options that may not be the ‘shiny new penny’ will further decrease demand in the submarkets where existing vacancies are the highest.”