Shopping Center Business

JUL 2018

Shopping Center Business is the leading monthly business magazine for the retail real estate industry.

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MICHIGAN 64 • SHOPPING CENTER BUSINESS • July 2018 construction in metro Detroit, according to Colliers International. Schmitt of Mid-America says that met- ro Detroit's retail trends mirror what's taking place in the rest of the country. Active users are food and beverage, en- tertainment, discounters, fitness and ser- vice-oriented tenants. "You don't see as many of the big boxes, as it's more about the infill of these box- es," he says. "It just goes into the overall changing mix of the retail industry. It's been cool to be a part of it instead of be scared of it." With a number of department store closures taking place over the past year or so, there are plentiful opportunities for backfilling space. Some of the best types of tenants to take over these vacant spaces include gyms, entertainment centers and medical office, according to Przybyla of Encore. Medical office is well received for backfilling because the tenant usually re- quires a little higher build-out for its space, therefore incentivizing the occupant to invest in its space and sign a longer-term lease of about seven to 10 years, he says. Przybyla is currently working on op- portunities for vacant Toys 'R' Us stores. He says that both retailers and landlords are getting creative with their uses. As an example, some Toys 'R' Us locations are being split into three separate spaces with three tenants instead of one. Five to 10 years ago, backfilling a space with a gym was considered "a swear word and no- body wanted to do it," says Lyons. Now, users like Planet Fitness have filled a lot of empty grocery or Sears and Kmart stores, he adds. "Retailers realize that gyms drive daily traffic, if people have regular work- out routines." MARKET FUNDAMENTALS The vacancy rate for metro Detroit's re- tail market was 5.7 percent as of the end of the first quarter, down 30 basis points from the prior quarter, according to Col- liers International. "The leasing market is the strongest it has been in a decade," says Greenspan of Landmark. "Vacancy rates are at or below pre-recession levels, and rental rates for multi-tenant strip center development are commanding over $40 per square foot in some areas compared with $30 only five years ago." Citing current market fundamentals, the strongest submarkets in Greenspan's opinion include Ann Arbor, Novi, Shelby Township, Bloomfield, Troy and North- ville. Troy, located right above Royal Oak, currently holds a 2 percent vacancy rate, according to Colliers. The town is home to Somerset Collection, commonly cited as one of the most profitable malls in the country with more than 180 stores. "A lot of class A space has been getting leased up, so vacancy rates are trend- ing down and rental rates for new con- struction of small spaces are up," says Schmitt. Big box spaces are a different story though, he says, because rents for backfilling these spaces are less than they were prior to the recession. SCB I n Western Michigan, some 150 miles from Detroit, Grand Rapids is the second-largest city in the state. Online residential real estate site Trulia named the city its No. 1 "Hottest Real Estate Market to Watch in 2018" based on job growth, affordability, low vacancy, home search rates and a high popula- tion of young households. In terms of retail, the Grand Rapids market is very active and strong, accord- ing to Rod Alderink, partner and asso- ciate broker with NAI Wisinski of West Michigan. "Some of these neighborhood retail pockets in and around the city have become very desirable for retailers over the past few years, and quite frankly, space is very hard to get," he says. Diamond Place is a mixed-use project from Third Coast Development slated to open in Grand Rapids this fall. The prop- erty will include three retail spaces span- ning 22,000 square feet. An undisclosed national grocer will be one of the tenants. Grand Rapids has an impressive gro- cery scene, as Meijer, SpartanNash and Gordon Food Services all call the city home. With this many players, Grand Rapids is also very competitive when it comes to food. Aldi has started to grow in smaller communities outside of the city such as Hastings, according to Todd Leinberger, retail specialist with NAI Wisinski. "The fundamental role of retail is to resupply households," says Leinberger. "Strong economic and job growth bodes well for retail." With a strong employment rate and housing growth, Grand Rapids is a hot retail market on its way to becoming a primary market, asserts Alderink. A development known as Studio Park is under construction in the downtown area and features a nine-screen Celebra- tion! Cinema as well as 187 apartment units. "To get a movie theater to come back to downtown Grand Rapids is be- ing hailed as a huge development accom- plishment," says Alderink. Sears has shuttered its store at the well-known Woodland Mall in Grand Rapids. The 400,000-square-foot space has been torn down, and Von Maur has now signed a 150,000-square-foot lease, according to Alderink. The redevelop- ment includes new restaurants and out- pad opportunities. "On the evening news you hear Sears [closures] and it's like the world's falling apart, but in Grand Rapids it's really an opportunity for the mall developer to reposition that mall and attract some new, higher-end restaurants and brands that have not been able to find locations with suitable demographics in the mar- ketplace," says Alderink. Leinberger adds that retailers who have relatively low debt loads will most likely be able to weather the "current re- tail storm." A low debt load will enable these retailers to "reinvest in their stores through either redoing or refreshing the physical space, relocating to a better lo- cation or reinvesting in omnichannel or digital e-commerce," he says. — Kristin Hiller Is the West Side the Best Side? A Look at Grand Rapids

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