Colliers projects steady growth for real estate market

January 21, 2011
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The principals of the region’s largest commercial real estate firm, Colliers International/West Michigan, saw 2010 as a bottoming-out year, and they see 2011 as a year of possibilities.

“As we predicted last year, recovery in commercial real estate began in 2010 and will continue in 2011,” said Derek Hunderman, vice president and managing partner at Colliers International/WM. “Even so, there remains a significant pipeline of troubled properties that must be dealt with over the next few years.”

Colliers International/WM held its ninth annual commercial real estate forecast at DeVos Place last week and the overall message was that a steady recovery is in the cards across the region, and that comeback may very well be led by the industrial segment of the market.

“I think industrial is our strong story and it has remained very healthy. It’s been restructuring for some time. We’re very bullish on manufacturing,” said Hunderman. He added that supply in the retail and industrial sectors also is healthy. “Retail has actually improved.”

But while the vacancy rate in retail finished the year at 11 percent and the rate for industrial was 9 percent, the office market told a different tale, with 24 percent of all available space looking for tenants. “Many of the office users are using less square footage and many have just shut down,” said Hunderman.

Scott Morgan, a principal and office specialist at Colliers International/ WM, expects the office market to improve slowly this year, more so in downtown than the suburbs. Rental rates should stabilize in the CBD but continue to dip in the suburban sectors. However, both should see some longer-term leases this year. Morgan expects it will take the overall office market another year to stabilize. The companies that downsized earlier should begin to add employees and start to “right size” in 2012. He said the medical office segment remains a strong office sector.

Mike Murphy, a principal and retail specialist with the firm, said while the segment is still struggling, it is improving: Vacancy fell from 12.6 percent in 2009 to near 11 percent last year. The growth is coming from discount retailers like Meijer, Wal-Mart and Target, both here and nationwide. He said those stores are willing to take a chance on urban markets instead of staying in the suburbs.

Murphy also reported more activity in the fast food and casual restaurant segment of the retail market; he sees a slight improvement in that sector’s vacancy rate this year. But he noted one detriment to retail growth: “We’re seeing, for the first time ever, that (a low) price isn’t filling spaces up.”

John Kuiper, principal and industrial specialist at Colliers, said that segment is definitely coming around, with 240,000 square feet absorbed last year. He sees sale prices rising very slowly this year, which would stop a three-year decline. A square foot of industrial space sold for $47 in 2007; last year the going price was $27. He expects lease rates to hold the line this year, but the vacancy rate will likely go up. Kuiper also warned that some troubled assets could stunt the market’s growth or even bring it down a notch or two.

Kuiper said he doesn’t see much new industrial construction this year but renovation work will be done at some plants. He said one company hiked a building’s ceiling last year, raising it from 16 feet to 32 feet to meet height requirements.

Company President and CEO Duke Suwyn, also an industrial advisor, expects to see more “insourcing” — manufacturing coming back from offshore sites — this year. “Automotive, medical, office furniture, food and other consumer product manufacturers stand to benefit locally in the coming year,” he said.

As for investments, Colin Kray expects some rather big things to happen this year. He said investor confidence is up and more investment capital is available. “Increased demand means price goes back up,” said Kray, also a principal at Colliers. “2011 is going to be a big year for investment sales.”

Property managers, though, will face continued pressure to grow a building’s income through cost controls and better operating efficiencies.

Elizabeth Slane, a Colliers principal, said a demand for rent concessions, mortgage defaults and bankruptcy filings fell last year from 2009. “But property managers still have limited ability to raise rents, which requires them to be more creative and aggressive with cost-control measures,” she said.

Ross Moore, chief economist for Colliers International, also felt good about the industrial market’s future. He said manufacturing jobs were up by 136,000 nationwide last year, which marked the first time that had happened since 1989.

“I think the biggest challenge I have today is to curb my enthusiasm,” said Moore. “For 2011, my money is on industrial. I think industrial is where it’s at. Industrial is absolutely off the scales.”

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