Market Data

Regional Outlook(12)

Big-Box Bonanza

Developers and retailers are betting that Cleveland shoppers are ready for a big-box shopping center. The 1 million-square-foot Steelyard Commons shopping center will be home to the first Target and Wal-Mart Supercenter in Cleveland proper. Both stores, 124,000 square feet and 217,000 sf respectively, are part of the first development phase on the more than 120-acre former LTV Steel site.

Other retail tenants include Home Depot, Marshalls, Old Navy, and Best Buy. As the development’s first store to open, Home Depot’s premiere illustrated the surrounding area’s pent-up retail demand. “The 600 people waiting at Home Depot the night before it opened is just a taste of the volume of business and the level of interest,” said Mitchell Schneider, president of First Interstate Properties, the project’s developer, to the Cleveland Plain Dealer.

While some local retailers have reservations about Wal-Mart entering the market, Schneider and other supporters are adamant that the 1,800 jobs and more than $3 million in tax revenues the development will generate — in addition to the shopping convenience — will benefit the market. Supporters also hope that the big-box center will draw additional shoppers to the area, rather than cannibalize customers from local retailers.

The stores will open throughout the year with the Wal-Mart Supercenter slated to open in September.

Highlights by State

  • Illinois -- Kinzie Station, a $750 million mixed-use project that includes six multifamily towers with 2,451 luxury apartments and 40,000 sf of retail, is planned for downtown Chicago. The project, which is a former railroad yard, is expected to be complete by 2014, according to the Chicago Tribune.
  • Indiana -- In Terre Haute, Dora Brothers Hospitality Corp. is developing an $8 million Candlewood Suites and a $12 million Hilton Garden Inn as part of a downtown redevelopment project, according to the Terre Haute Economic Development Corp.
  • Michigan -- More than $1 billion of new construction currently is underway in Grand Rapids, as private capital from Chicago, Detroit, New York, and California searches for quality investment properties in the western Michigan market, according to Grubb & Ellis.
  • Missouri -- St. Louis retail construction has outpaced absorption for the past four years, says Colliers Turley Martin Tucker. Developers continue to build in growing areas and redevelop older properties even though neighborhood and community center vacancy rose 0.3 percent last year, according to Reis.
  • Minnesota --The Twin Cities are experiencing a drought in bulk warehouse space with only 35 properties larger than 50,000 sf in the market, according to United Properties.
  • Ohio -- In suburban Akron, office lease rates increased for the third straight year to $16.08 psf during 4Q06. More inventory will become available due to new construction and conversion of single-tenant buildings to multitenant, which is expected to affect lease rates, according to CB Richard Ellis.
  • Wisconsin -- Office vacancy rates in Green Bay should decline to 15 percent from 20 percent this year as the city’s strong employment growth continues, according to Grubb & Ellis.

Growing Market Experiments with R&D

A 70-acre bioscience research campus will be added to a Fishers business park to help lure high paying jobs to the market, according to the Noblesville Daily Times. The first phase of the Fishers Research and Technology Campus is expected to create 200 to 300 jobs with salaries between $40,000 and $100,000.

A suburb of Indianapolis, Fishers has experienced a 600 percent population increase in the last decade and was named Money magazine’s 33rd best place to live in the U.S. last year. The Indianapolis metropolitan area is ranked the ninth largest bioscience market in the country by the Battelle Memorial Institute, which ranks technology trends.

The research and technology campus will include both wet and dry laboratories, office, and light-industrial production facilities. The first building, which will encompass 50,000 sf and house up to 25 tenants, is expected to break ground this spring, according to the Indianapolis Star.

Glasgow's International Financial Services District
Credit: Budge PR

Glasgow, Scotland, Gets Class A

A 10-year collaboration between Scottish Enterprise and the Glasgow City Council has culminated in Glasgow’s thriving International Financial Services District. The district has made significant progress toward its goal of adding 20,000 jobs and 2 million square feet of class A office space by 2010.

Since the project launched in 2001, the following developments have been started:

• 1 million sf of new class A office space with another 162,000 sf scheduled for completion by year-end;

• 500 residential units with another 400 planned;

• 36,000 sf of leisure accommodations including clubs, bars, and restaurants; and

• 65,000 sf of retail space.

Scottish Development International and Glasgow’s Business Location Service have collaborated to attract new companies to the district including First Data and ACE. Other companies, such as Barclays Wealth, JP Morgan, and Morgan Stanley, have increased their operations in the district since 2001.

Apartments Rise From Ashes

Michigan has the highest unemployment rate of any state and the multifamily market hit a low point in the past few years, according to Multi-Housing News. Still, experts predict the outlook soon will improve. As first-time home buyers are ebbing, apartment occupancy is rising. The multifamily market absorbed 900 new apartment residents between June 2005 and June 2006, an improvement from the previous year’s negative absorption of 1,125 residents.

Institutional investors have been exiting the market throughout the past few years. But opportunity investors are finding it a good time to enter, reasoning that the recent occupancy and concession slumps are bound to give rise to improved fundamentals.

Multifamily Moving In

Springfield’s downtown is experiencing revitalization, especially in the multifamily sector. During the past five years, more than 200 loft units have been developed and 100 more are expected to be completed this year, according to Midwest Real Estate News. The redevelopment of the 150,000-sf Heer’s Building, owned by the city, will be a key component of the rehabbed downtown district. The city currently is seeking developers for the mixed-use redevelopment project.

Retail Construction Rush
Vacancy rates are falling and lease rates are rising in Chicago’s retail market. With downtown properties such as Block 37 and suburban Arlington Heights’ NorthPoint shopping center changing hands in 4Q06, and new construction in the pipeline, this should be an exciting year for Chicago retail.

Block 37 at 108 N. State Street will feature office, retail, hotel, and residential space, as well as a new transit station. Mills Corp. sold parts of the $450 million property to Joseph Freed & Associates during 4Q06.
Credit: Mills Corp.

Hypothetical Hospitality?

Caption: Older Milwaukee hotels, such as the Marcus Center Wyndham, will compete with several new hotels slated for completion this year.
Credit: Greater Milwaukee Convention & Visitors Bureau
There are several hospitality developments in the pipeline for downtown and suburban Milwaukee, but probably too many for the market to support according to local hospitality experts, Small Business Times reports. With 11 hotels planned downtown and 11 more being developed in the suburbs, it is unlikely that all 22 hotels will reach completion, experts predict. But as hotel occupancy rates in the city reach nearly 70 percent, it is clear that at least some demand exists.

The projects slated to break ground this year include:

• A 14-story mixed-use project with a 135-room Staybridge Suites hotel, 30 condos, and 17,000 sf of retail is slated for completion in 2008.

• A 180-room upscale boutique hotel built by a local developer should open in 2009.

• A 165-room Renaissance ClubSport by Marriott hotel will rise in the historic Third Ward district.

Industrial Market Snapshot

Industrial development will take place in uncharted territory as developers stretch farther into the suburbs in search of more affordable land options. Absorption will continue to accelerate [this year], putting further upward pressure on rental rates.
Rising rental rates will encourage developers to move forward on new projects.

Existing product is being absorbed quickly. Vacancy will reach 10 percent within a year if the trend continues.

Developers are poised for new industrial projects — 3.9 million sf
of new space is on the drawing boards. Developers continue to seek additional land positions, anticipating the start of a new phase of industrial development.

— Jonathon T. Rausch, CCIM, SIOR, senior associate, United Properties


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