This is Michigan: Heartland Snapshot, February 2009 - Detroit Retail Market

The College for Creative Studies is nearing completion of its renovation of the historic Argonaut Building in Detroit.

Like the rest of the country, Detroit has experienced a significant slowdown in retail development; nevertheless, the city's cautious attitude during the building boom of the early 2000s has left Detroit in a better position than many of its Midwest counterparts. Without a large amount of spec development in the market, Detroit has been able to keep its retail vacancy rates relatively stable in the midst of economic uncertainty.

"As far as unemployment, we have obviously been dealing with the auto fall-out for the last couple of years," explains Tony Schmitt, a vice president of Southfield, Michigan-based LaKritz-Weber & Company. "However, in the retail sector, we are seeing the same issues that every one else is now seeing as far as the credit crunch, which is affecting the consumer, which is affecting the retailer, which is affecting the landlord."

Despite this debilitating chain reaction, the Detroit retail sector is not waving its white flag. While much of the country has been investing in large lifestyle centers, Detroit has been focused on developing smaller projects anchored by steadfast retailers such as Wal-Mart, Meijer and JC Penney. For example, a Wal-Mart-anchored center recently broke ground in Livonia and Hartland, Michigan, and a new JC Penney-anchored project is currently underway in White Lake, Michigan.

Until recently, most of these developments were being constructed in greater Detroit's remaining greenfield areas. Now, the region has experienced a shift in retail development that focuses on where the population is, as opposed to where the population might be going. Throughout this shift, Ann Arbor has maintained its status as a retail hot spot.

One of the key reasons for retailers' unyielding interest in the Ann Arbor market is the city's unprecedented growth. In 2000, the University of Michigan announced its $2.5 billion The Michigan Difference campaign. Since then, the university has initiated a plethora of construction projects that have swept through the community.

Most recently, the University of Michigan announced its plan to acquire the approximately 174-acre Pfizer property bordering its north campus. The 30-building, $107 million property will be converted for the university's research activities in health, biomedical sciences and other disciplines.

"We are leasing a mixed-use project that is right across from the Pfizer property," Schmitt says. "Everyone was kind of questioning what was going to happen when Pfizer closed down because the area lost 2,000 jobs, but with the university going in there, it could be a real win-win situation for the area."

Even with Ann Arbor's tremendous growth, the greater Detroit retail market has not been able to completely distance itself from the deeper issues impacting commercial real estate. International economic uncertainty has created a lag in consumer spending that has forced many retailers to pull out of expansion deals. Additionally, a lack of available capital for developers has brought many proposed projects to a halt.

"There is a lot of wait and see that is going on both locally and nationally," Schmitt explains. "The positive is [that] we still have good new construction projects that got off the ground that are open now, and are doing well."

- Ashley Ball