Market Data

Midwest Markets Grow

New opportunities sprout in most commercial real estate sectors.

America's heartland, known for a slower pace of life than either coast, didn't see many dramatic commercial real estate developments during the past year. But the Midwest did see some modest improvements.

Leasing rates throughout the region increased slightly in each sector, except industrial which evened out, reports Grubb & Ellis. Moderate economic growth should increase the leasing market's momentum but not cause interest rates to spike, which could derail the strong investment market, the report adds.

The retail market shows promise this year. An abundance of construction and new development has begun or is underway throughout the region, including new retail centers in Indianapolis and Milwaukee and a possible addition to Minneapolis' Mall of America.

New multifamily construction also has been a regional trend, including luxury condominiums in Cleveland and Milwaukee. Loft-style living in mixed-use properties that provide work and play opportunities are gaining popularity in many heartland cities.

Nearly one-fifth of U.S. manufacturing is based along the Great Lakes, reports Grubb & Ellis, which emphasizes the importance of the region's industrial market. Absorption of industrial space in urban areas such as Chicago and Detroit remained positive, and other cities showed small improvements as well.

Last year didn't end well for the Midwest's office market, with Cincinnati, Kansas City, Mo., Cleveland, and Minneapolis experiencing negative absorption, according to Colliers. But experts predict the market slowly will improve and reach equilibrium by 2006.

The Midwest's friendly people and picturesque towns spur the region's hospitality market. The lodging industry remains strong with growth expected in Kansas City and Milwaukee, which both are revitalizing their downtown districts.

If the economy continues its steady ascent, each commercial real estate sector in the region should see gains by year-end.

Photo: The Cordish Co.

Kansas City, Mo.

Mixed-Use Mania
To revitalize its lagging downtown, Kansas City, Mo., teamed up with the Cordish Co. on Kansas City Live!, a mixed-use entertainment development. The project's first phase will open in summer 2006 and include 425,000 sf of retail and entertainment space. The second phase includes 1.2 million sf of office space, 7,200 parking spaces, and 1,200 residential units. The project is more than 70 percent leased.


Industrial Varies
While the outlook isn't particularly optimistic for the Detroit industrial market, there does appear to be stability. Absorption rates are improving slowly and rents mostly were flat through January. Leasing trends vary by submarket.

• In southern Wayne County warehouse/distribution facilities saw healthy leasing activity at the close of last year.

• In western Wayne County general industrial buildings saw the greatest demand. A 102-acre build-to-suit project is planned for this year by DeMattia, which is expected to add nearly 900,000 sf of industrial space.

• The southeast Oakland market saw leasing demand for manufacturing space. New construction will add approximately 130,000 sf of general industrial and distribution space this year.

• Research and development/flex space saw positive absorption in the southwest Oakland market last year, but the warehouse sector was inactive. Leasing rates for R&D/flex were stable, while asking rates for general industrial and warehouse dropped 2 percent.

• The Macomb Township market saw an increase in leasing activity for general industrial buildings, but a decrease in demand for flex and warehouse properties. Asking rents for general industrial and warehouse fell by nearly 4 percent.

Source: Grubb & Ellis


Retail Vacancy Up
Last year, nine Minneapolis/St. Paul-based Mervyn's stores were closed, accounting for more than 1.3 million sf of retail space. As a result of the closings, regional mall vacancy increased to 14.9 percent by year-end, an increase of 11.3 percent from mid-year. The closings led to Minneapolis' first decrease in retail absorption and increase in retail vacancy since 1996.

The vacated Mervyn's properties present a number of possibilities. Two have been leased by J.C. Penney Co., which plans to open renovated stores this summer. Mall owners in Edina, Minn., and Roseville, Minn., purchased one property each, while the other five remained on the market as of January.


Industrial Awakens
Chicago's industrial real estate market is on the verge of an upswing. At the end of last year, more than 15 million sf of construction had been started, a large increase over 2003's 11.3 million sf, according to CB Richard Ellis. During 4Q04, 10 million sf of new industrial space was completed, according to Grubb & Ellis.

In suburban markets, some older facilities are being razed for new developments. During 4Q04, Copperweld Distribution Trust's 436,616-sf Bedford Park, Ill., facility was sold to Ridge Property Trust, which plans to build a speculative manufacturing and distribution facility on the 22-acre site.

Overall, Chicago's industrial rents were up 0.6 percent at year-end 2004 to $4.87 psf. Rents are expected to continue to rise modestly this year, according to Transwestern Commercial Services.

Omaha, Neb.

Office Market Stabilizes

• Omaha is home to five Fortune 500 companies including ConAgra and Union Pacific.

• At year-end 2004, office space availability had decreased by 11 percent since mid-year.

• Despite several quarters of decline, rental rates show signs of of plateauing with a 1 percent drop since 1Q04.

• Approximately 973,300 sf of new office construction is expected to break ground over the next two to four years.

Sources: Lund Co., CB Richard Ellis, and Investors Realty

Photo: Bingham Burnside LLP


Luxury Lives
In recent years luxury multifamily properties have popped up around Cleveland, primarily in the historic Warehouse District. New developments include:

The Bingham
• Converted from a former hardware company's headquarters
• Located in the Warehouse District
• 340 loft-style units
• Rents range from $710 to $2,400

District Park
• New construction in the Warehouse District
• Condominium, townhouse, and penthouse units range from 835 sf to 2,808 sf
• Unit prices begin at $170,000

The Pinnacle
• New construction adjacent to the Warehouse District
• 12-story building with condominiums ranging from 1,400 sf to 4,600 sf
• Units priced between $300,000 and $1.2 million

• Contemporary apartments and condominiums
• Located in the Flats
• Purchase prices range from $149,900 to $247,900
• Rents are between $650 and $900

Crocker Park
• New construction located in Westlake
• First phase features 160 apartments ranging from 670 sf to 1,200 sf
• Rents are between $750 and $1,200
• Second phase will include townhomes and condominiums

Source: Heartland Real Estate Business


Retail Blossoms

Indianapolis is on track to become a midwestern retail mecca with several new developments in the pipeline.

Later this year, construction will begin on a new mall along Interstate 70 near the Indianapolis International Airport. The 375-acre 70 West project is expected to be one of the largest retail developments in the Midwest, according to the Indianapolis Star. The 3-million-sf complex will take more than 10 years to build out, and while no tenants have been announced, big-box retailers, an indoor/outdoor mall, hotels, conference space, and a water park are among the features.

Central Indiana's first lifestyle center, Clay Terrace, in Carmel, Ind., opened in October 2004 and features fountains, outdoor seating, and surface parking in addition to 570,000 sf of mixed-use development, according to Colliers Turley Martin Tucker. Tenants in the SPG and Lauth Property Group joint venture include DSW Shoe Warehouse, Bath & Body Works, Wild Oats, and Dick's Sporting Goods, among others.

Indiana Retail Activity



Clay Terrace Carmel 570,000
Stony Creek Market Place Noblesville 455,000
Cool Creek Crossing Westfield 450,000
Traders Point Indianapolis 350,000
Cool Creek Commons


Towne Center at Geist Hamilton County 127,000
Hazel Dell Crossing Noblesville 300,000
Greenwood Springs Greenwood 212,000
Westfield Marketplace Westfield 175,000
West Carmel Marketplace Carmel 165,000

Springmill Commons

Westfield 110,000
Oak Manor North Westfield 75,000
Villages at Geist Fishers 70,000

Source: Colliers Turley Martin Tucker

Midwest Hospitality Market Snapshot

In major markets, four primary segments are in high demand: upscale limited service, focused service brands, extended stay, and full service. Development in the economy/budget sector is at a halt. Developers are looking for markets with high entry barriers and higher land costs with limited sites available. In particular, developers are seeking niche products and brands. For example, extended stay is very active because it has not been overdeveloped nationally due to higher initial capital costs versus other limited-service brands.

Robert A. Zache, CCIM, president of Central Place Real Estate

Carolyn Bilsky

Area report is written by Carolyn Bilsky, associate editor of Commercial Investment Real Estate. Contact her at (312) 321-4507 or


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