Real estate report reveals insights into West Michigan
UM/ULI’s second annual report says state is ‘undervalued’ by outside analysts.
Michigan’s real estate markets had “steady, but uneven,” growth this year.
According to the second annual Michigan Real Estate Trends Report, prepared by the University of Michigan/Urban Land Institute Real Estate Forum, West Michigan did well this year in terms of growing real estate trends, with the major cities in the state’s western district being Grand Rapids, Muskegon and Holland. About 56 responses were collected for the report, which used data by Prosperity Regions and Costar, according to the draft report.
“Overall, the real estate markets in Michigan have experienced steady, but uneven growth over the past year. There have been some bright spots, such as in and around Detroit, Grand Rapids and Ann Arbor, but there is a wide range of stories in markets around the state, from Marquette to Monroe, as the overall economy improves and the state diversifies,” the report draft reads.
“More importantly, it is still clear that this growth in real estate, and its future potential, continue to be undervalued by analysts and pundits outside of Michigan.”
Economic indicators were key to the report, which showed that median household income increased by 8.7 percent in West Michigan, even while the area suffered a decrease in total employment. In terms of industrial building sales, West Michigan came in second in the state among metropolitan areas. It came in third both for having the highest volume for office building sales and for retail building sales.
The southwest area, home to Kalamazoo, also did very well.
“First, southwest Michigan had a remarkable year, with total employment growing by 10.4 percent and median household income growing by 4.4 percent,” the draft report read. “In absolute terms, the increase in employment in southwest Michigan accounted for nearly half of statewide employment increases. We would love to know what is going on there.”
As for the trends in submarkets, Grand Rapids led the way after Ann Arbor.
“Whether ranking by regions or cities, the respondents consider development in Michigan to be just slightly better than fair. … Regionally, the best outlook was for the West, with Metro Detroit just slightly behind. Four regions along the coasts were ranked as fair redevelopment outlooks, the highest for any region in the state: West, Metro Detroit, Northwest and Southeast,” the draft report read.
“Ann Arbor, with an almost perfect score of 4.75 (out of 5), tops the list of best prospects for real estate with the only rating of excellent, although Grand Rapids (4.48) is very close as the second-ranked city.”
The report remarked, “One of the best stories in Michigan’s industrial market has been the overall recovery of the sales market.” In 2010, it was $16.61 per square foot, and in 2013, it was $23.85 per square foot, with this year’s average posting at approximately $31.26 per square foot, marking a 31 percent increase from last year and an 88 percent increase from what it was worth in 2010.
Grand Rapids and Detroit, the state’s largest cities, saw the majority of the sales activity.
“As a sign of the market’s vitality, quality industrial buildings in quality submarkets are trading for higher prices per square foot than their nearby office counterparts. This scenario, which would have seemed unthinkable five years before, is demonstrative of both the economic recovery in Michigan, and the market challenges facing the sector,” the draft report read. “Not surprisingly, the majority of the state’s sales activity has occurred in the state’s largest industrial markets of Grand Rapids and Detroit.”
As far as future opportunities are concerned, Detroit topped the list as offering the most exciting development opportunities, with Grand Rapids ranked second. However, the top impediment cited to real estate development in the state was a “lack of alternative modes of transportation.”
“In 2013, 35 percent of respondents ranked it first, compared to a similar 39 percent this year. Detroit and Grand Rapids, with their light-rail and fixed-wheel public transportation initiatives, will be a model of the Michigan cities, but regional and city-wide transportation challenges remain,” the report read.
“Though likely due to a host of reasons, it may be that this is not so much an impediment but an opportunity, as urban areas in the state are increasingly desirable locations for redevelopment.”