Michigan Rising?
Speaking with Ron Goldstone, senior VP at Southfield, Mich.-based Farbman Group really got my juices flowing about the Midwest retail real estate marketplace — Michigan in particular. The state’s retail real estate market is an interesting candidate for closer study, simply because the Detroit dynamic, even in its extremes, gives us a valuable perspective on the national landscape:
Jeff Green: When we talk about the Midwest, I always like to start with Michigan, just because it’s such a fascinating market. For quite some time now, I’ve been hearing good things from my retail clients about Southeast Michigan — specifically Detroit. They’ve been pleasantly surprised (even shocked) at how well they have performed, given the city’s less-than-stellar economic reputation.
Ron Goldstone: Michigan is a really interesting case. Post-9/11, the state’s growth slowed dramatically relative to other regions. As a result, Michigan is largely under-retailed, with fewer store closings and competition/crowding issues today. We’re now seeing more open-mindedness and interest in Michigan — especially from Fortune 500 retailers — but the state is still not at the same general level of rapid expansion that we’ve seen nationally over the past several years. I also think it’s important to note that this isn’t unusual — Michigan isn’t always in sync with larger national boom and bust cycles.
Jeff: In 2007 and 2008, I had clients who wouldn’t even consider talking about sites in a handful of troubled areas around the country. Michigan was on a “no fly” list that includes trouble spots like Nevada, Arizona and Florida. But I think you’re right — that’s changing. Nevada is still off limits, but Arizona, Florida and Michigan are loosening up some. I don’t mean to imply that Michigan has all that much in common with those other markets. Phoenix had such fast and furious growth before hitting a brick wall in 2007. Michigan, on the other hand, never grew as quickly, but the bright side was that it didn’t have as far to fall.
Ron: I still don’t think we’ve hit the point of truly robust expansion in Michigan — it’s more of a steady improvement, Today, I’m still seeing some large Michigan tenants consolidating. There is also backfilling of existing boxes: more of a focus on sales-per-square-foot and downsizing formats to more efficient sizes than on big-time expansion.
Jeff: That’s hardly limited to Michigan, of course. In a more general sense, that’s a trend we’ve been seeing across the Midwest and even nationally.
Ron: Absolutely. We’ve seen Best Buy leasing space in its own store, as well as Staples doing some soul searching and reinvention of its own. To some extent, we see the sales-per-square-foot focus everywhere, but Michigan is really its own animal with respect to the timing of these trends.
Jeff: As for other Midwest markets Chicago is strong, as always, and Columbus has exploded in recent years. Detroit might be a little bit more analogous to Cleveland, Cincinnati, and possibly Milwaukee: other “blue collar” cities with some similar social, commercial and industrial dynamics at play.
Ron: There are definitely some correlations there. Your point about those ‘blue collar’ cities is a good one, because while it highlights some interesting similarities, it also reminds us that we can’t look at the Midwest as one entity — it’s a surprisingly diverse region with some distinctive individual markets that some people mistakenly tend to lump together.
Jeff: I also see that there is some real untapped value in Western Michigan, which is an area of the state that sometimes gets overlooked. There have been some significant success stories there in the last year or so. It goes back to what you said earlier: because it has never been over-built, there are some real opportunities.
Ron: What we’re seeing now is steady, strategic growth. While certainly not a “boom,” it’s healthy. Retailers are expanding thoughtfully: working out new concepts and footprints, and deploying new prototype designs. It’s also important to think about where that growth is taking place: the City of Detroit itself is actually on quite an upswing, but the differences between downtown and the suburbs can be significant. In the city, there have been some real highlights lately: Whole Foods downtown, the Gateway Marketplace project and improvements to the Central Business District have all been significant — and progress is ongoing.
Jeff: Do you think that recent focus on the city itself is a net positive over the whole metro area, or does it take something away from the suburbs and other areas?
Ron: I’d say a net positive. I’ve actually seen some large companies considering relocating to Detroit — one was recently debating between San Francisco and Detroit, and that’s a short list you didn’t hear very often (if at all) not too long ago.
Jeff: Detroit still has work to do to overcome the stigma and the ingrained biases built up over the years — not with real estate reps as much as with the executive decision-makers themselves. And that will take some time.
Ron: Very true. And part of that skepticism is justified — or, at least, it was in the past. Retailers had to swim upstream against a civic government that wasn’t particularly accommodating (and maybe even fairly hostile in some instances) to business growth. But now that situation is much improved, and with job growth and home prices recovering, there are many reasons for optimism. Challenges certainly still exist, but even some of the chronic problem areas are seeing real progress. I’m encouraged.
How do you see Detroit’s rebound impacting your retail real estate decisions? Will the Midwest as a whole be a leader or a follower in retail’s growth in 2014? Join the conversation and comment below or email me at [email protected].
Click here for past columns by Jeff Green.