As a service to our valued clients and friends, Plante & Moran CRESA (Corporate Real Estate Service Advisors) will periodically publish articles covering rental and vacancy rates, market trends, recent major transactions, and more, relative to four commercial real estate marketplaces: Detroit, Western Michigan, Chicago, and Cleveland. Our goal? To offer an unbiased perspective on the world of commercial real estate.

Detroit

As the automotive industry continues its downward trend, we’ll see automakers and their suppliers either downgrading to lower quality buildings or downsizing to smaller, more cost-efficient, facilities. Tenants can expect to see a great deal of lease rate concessions as a result of soft market conditions, while landlords face the challenge of deciding whether or not to sign lease deals with cash-challenged automotive suppliers. With an increase in financing requirements by financial institutions, developers are no longer building at the rate they were prior to and during earlier economic downturns, helping the vacancy to somewhat stabilize. Several of the largest lease signings occurring so far in 2006 include the following: Bay Logistics leasing 507,550 square feet in Romulus, Office Depot leasing 209,100 square feet in Plymouth, and the 156,000 square-foot renewal by Feblo International in Livonia. One of the largest transactions of the last four quarters in the Detroit market is the sale of Kmart headquarters in Troy. This 1,084,000 square-foot office building sold for $40,000,000 at the end of last year.

West Michigan

With vacancy rates decreasing from the previous quarter, the Western Michigan office market has begun 2006 on a positive note. The same can’t be said, however, for the industrial market. Large plant closings, including the closing of multiple Steelcase facilities, will influence the industrial market and slow speculative development as well as have a major impact on overall vacancy rates. With an in-crease in rent due to high demand in the suburban areas, landlords in the office market may see an increase in negotiations with tenants, also increasing the length of time it takes to close a deal. Large recent transactions include Van Eerden Distribution moving into 180,000 square feet in Grand Rapids, Lacks Enterprises moving into 250,000 square feet in Kentwood, and the sale of the 168-acre Gerald R. Ford International Airport.

Chicago

With mergers across several industries and an overall increase in staffing, the downtown Chicago office market is on the rise with a decrease in vacancy rates from the previous quarter. Large lease signings include 297,000 square feet by Commonwealth Edison, 200,000 square feet by Blue Cross Blue Shield, and 252,000 square feet by CDW. As construction costs increase and the market continues to recover, tenants can expect landlords to be less generous in negotiations. The expansion of Chicago’s O’Hare International Airport, having commenced nearly four years ago, has had a positive impact on the Chicago industrial marketplace. High demand to be near the airport continues to be the driving force behind the increasing rental rates in the O’Hare submarket. Competition is increasing as companies are deciding where to relocate in the outlying areas. With roughly one-third of the goods consumed by Americans traveling the railroad tracks surrounding the city, big box warehouse and distribution centers continue to be the benchmark of the Chicago industrial market.

Cleveland

With expansions and the arrival of new companies in the Cleveland office market, vacancy rates have dropped since the previous quarter, proving that efforts to recruit new tenancy are working. The Cleveland industrial market has seen its lowest vacancy rate since the 1990s, possibly caused by the decreasing availability and a very small amount of development. In the coming months, tenants in the Cleveland office and industrial markets will be faced with several challenges. For example, the rising cost in construction in addition to rising interest rates will cause tenants to spend more out-of-pocket dollars to complete their improvements. Stringent financing requirements have limited the amount of speculative building developers are willing to risk. With fewer and fewer buildings being delivered to the marketplace, tenants can expect to see a decrease in the amount of landlord’s concessions and will also see an increase in the effective rental rate. Major transactions in the Cleveland market include Gladstone Commercial moving into 83,891 square feet and IMG Worldwide moving into 81,257 square feet.

In Conclusion

Plante & Moran CRESA is committed to providing you with the best solutions to meet your immediate and long-term real estate needs. For more information about the current real estate market in any geography or for assistance with a planned or ongoing construction project, please contact Bill Lichwalla or David Grinnell.