Land use patterns and real estate trends can reveal an enormous amount of vital information about the social and commercial forces that shape where and how we live. Oftentimes, the difficulty lies in supplementing anecdotes and perceptions with reliable economic and real estate data.
Fortunately, for the last three years, Michigan real estate professionals and other interested parties have had access to an extraordinary resource: a report that provides an in-depth look at the state of the state’s real estate marketplace, in both perceptions and real data. The report, a collaborative effort between ULI Michigan and the UM/ULI Real Estate Forum, is called “Michigan Emerging Trends.”
The full 2015 report will be presented in depth at the 2015 UM/ULI Real Estate Forum on Tuesday, Nov. 10 and Wednesday, Nov. 11 in downtown Detroit, but what follows is a preview of some of the key findings that impact Michigan communities.
The outlook by region, as described in a survey of real estate professionals, continues to be strong for Metro Detroit and West Michigan (including Grand Rapids), but the outlooks for other areas of the state have dropped from last year. Detroit continues to be the favorite city for future development opportunities, with Grand Rapids and Ann Arbor being perpetual seconds. But of greater interest is the potential in smaller Michigan cities, such as Traverse City, Marquette and Saugatuck, all mentioned in survey results over the years.
The report reveals that while multi-family, general construction and financing segments are projected to continue a multi-year growth trend, commercial and real estate related services are expected to grow slower than in previous years. The prospects for business growth next year in Michigan as compared to other states is less optimistic than the previous two years for all categories except industrial, where opportunities in Michigan should be better than in surrounding states.
After a decade and a half, the Michigan unemployment rate is now below the national average. This noteworthy achievement is illustrated by the best unemployment numbers in 14 years. While Michigan’s population has remained steady over the last four years, employment has rebounded from a 2010 low back to almost the same level as in 2005. Median household income, however, which bottomed out in 2011, still has not yet recovered to even 90 percent of the 2005 level. Although more people are working, households are not wealthier.
Industrial and multi-family remain strong
Industrial and multi-family real estate are the most active segments, continuing the trend from 2014. In the pipeline report (which includes the 50 top projects in each of three categories: completed, under construction and proposed), the office segment emerged as the big surprise. Proposed office development is down by more than half from last year. The majority of the projects in the “completed” category in the pipeline report were for industrial (31 percent), followed by multi-family (26 percent). A similar trend is seen in the “under construction” pipeline, with multi-family at 36 percent and industrial at 29 percent, and the “proposed” pipeline, where industrial is 36 percent and multi-family 29 percent.
Sales volume levels off
Rents per square foot are generally up for industrial, but down for office and retail. More surprisingly, sales volume has declined in all three categories for the last two quarters. After significant improvement from 2010 to 2013, 2014 exhibited a significant peak in the fourth quarter, and 2015 saw a leveling off in sales volume (but a continued increase in total square feet sold). The exceptions were multifamily, with continued steady growth in both sales volume and square feet sold, and industrial, which declined sharply starting in the first quarter of 2014 for both indicators.
It is important to note, however, that these indicators for all segments are still at or above pre-recession levels, indicating a slow but strong recovery. While the number of sales for buildings has been steady for the past twelve quarters, land sales fell by about 20 percent in the first quarter of 2014 and have remained generally at that level for the past five quarters.
While signs of a slowing recovery and significant differences in outcomes between different market segments bear watching, the overall portrait is fairly encouraging, with opportunities in major metropolitan areas as well as strong sub-markets. For a state that has weathered major headwinds in the last decade, the continued health of the real estate marketplace in Michigan is reason to celebrate.