Possibly the biggest thing commercial realtors and developers need to know for 2012 is that the area’s banks are generally in good financial condition.
“You have great banks and lenders in your market,” said K.C. Conway, executive managing director of market analytics for Colliers International, who lives in Atlanta.
The next-biggest thing they probably should know is that capital will be available here this year. “In 2012, you’re going to see an uptick of capital coming back into the market,” said Cathy Bronkema, partner and executive vice president of Cohen Financial. “Investors are looking for value-added activities and skill sets, and they can find those in this market.”
Those two things are important to note because Colliers International of West Michigan, the region’s largest commercial real estate firm, recently announced that the worst is over and the market will slowly improve this year.
“We have definitely turned a significant economic and real-estate corner and finally have begun our recovery. This will be a long and potentially drawn-out process, but our region’s fundamentals are strong and trending in the right direction,” said Derek Hunderman, vice president and managing partner of Colliers WM.
Hunderman also said vacancy rates leveled off last year across all the property classes, including retail, countering the hikes that came in 2008 and 2009.
“We’re seeing some stabilization, which is good news,” he said.
Although 2011 was pretty much a banner year for the industrial class, with more than 500,000 square feet of space being absorbed, Colliers WM said 2012 will be a year to rebuild the sector’s reputation and perception as absorption of that magnitude a year ago isn’t going to turn into a ongoing trend.
“We’re going to have to see new construction,” said Duke Suwyn, Colliers WM president and CEO. By that comment, Suwyn meant potential buyers toured the area looking at buildings that they felt were too small and not modern enough for their needs so they left here empty handed.
“Our sales rates are back up to historical highs, but the problem is the historical highs are half of construction costs,” he said.
Within the industrial classification, Conway said warehouse space will become a prime target for investors this year. He said that because he believes the U.S. has the best ports on the planet and that more goods can arrive and leave from here than any other nation — and space will be needed for those goods. Add to that a prediction from GVSU economic professor Hari Singh that exports from here will rise by 7 percent this year.
“I’m actually very, very bullish on warehouse space,” said Conway. “2012 is the year for warehouse, not so much retail.”
But locally, Colliers WM feels the future is a bit brighter for retail in 2012 than in other locales. The firm’s report shows the key 28th Street and Alpine Avenue stretches as active last year and continuing to be active this year. Centerpointe Mall will start a two-year “de-malling” process this year to trim excess space and consolidate tenants. Retail landlords will offer fewer incentives this year, and Colliers WM sees that move as a way to keep rental rates low.
Mark Ansara, a retail specialist with Colliers WM, said he sees national retailers returning to the market this year and feels the worst is over. He believes 2012 will build on the momentum retailers gained from the last quarter of 2011.
As for the office market, Colliers WM said the panic is over because the marketplace is more predictable now than it has been the last few years. Still, the firm expects that this year will look a lot like last year. The suburban market is expected to experience slow but steady absorption this year with slightly higher rental rates. The southeast sector should draw most of the suburban attention this year.
Rates are likely to also climb a bit downtown this year and vacancies there will remain flat, but new tenants are expected to sign longer leases than in recent years.
David Weiner, an office specialist at Colliers WM, said the biggest winners this year will likely be the “trophy” addresses — buildings that have well capitalized and stable ownership and that have been successfully repositioned to meet today’s needs.
Weiner noted the market had four consecutive quarters of positive absorption last year for the first time in three years.
Colliers WM feels investment activity will increase this year, especially from out-of-state investors who realize that Michigan is in an economic recovery and offers higher returns than other states. Much of that investment is expected to be made in the industrial and office markets, with the retail sector lagging behind those this year.
Colin Kray, a principal and investment specialist at Colliers WM, said he anticipates a healthier level of transaction volume this year, with fewer distressed sales. He also said a number of sellers are interested in taking advantage of the single-tenant market via a sale or possibly a leaseback deal. “In 2012, we will see a handful of high-quality, high-profile, lender-owned pieces of investment real estate that will trade hands,” he said.
Conway noted that 61 percent of those who have commercial mortgage-backed securities across the country are unable to refinance or pay off a mortgage. Multifamily residential developments and hotels lead the 30-day delinquent parade in the CMBS market, with industrial properties running a close third nationally.
But Conway felt that situation wasn’t as compelling here. “You don’t have a lot of CMBS’s in this market,” he said.
As for the nation’s housing market, Conway said it currently has a supply of too many homes — 8 million too many, in fact. His data shows that 1.8 million housing units were built each year from 2004 to 2007 and, for each of those years, demand was for only 800,000. That put an over-supply of 4 million homes in the market. Then the mortgage crisis reduced home ownership from 69 percent to 62 percent, putting 4 million more houses on the market. He noted that with the standard demand rate of 800,000 per year, it will take the nation 10 years to absorb the 8 million housing units in the market.