As 2010 wound to a close, the real estate forecast was surprisingly bright and cheery for many areas of the country. Some metropolitan areas are projected to appreciate as much as 40 percent, while the entire commercial sector has analysts rubbing their hands in anticipation – muted, but anticipation nevertheless. However, the silver lining does have a dark cloud to go along with it, and it is starting to look like that dark cloud is hovering largely over the Southeastern Michigan market and Detroit, Michigan in particular, according to a forecast by commercial developer Grubb & Ellis Company[1].

In Detroit, office vacancies are expected to rise to 27 percent in the region by the end of 2011, while rents continue to slump as well. In fact, unemployment hit the region so hard in 2010 that although hiring is picking up, employers are not going to need any more space for expansion until their workforces grow by about 10 percent. “Companies are sitting on a lot of space,” explained managing director of the Detroit region of Grubb & Ellis Fred Liesveld. “They can hire a lot of people without adding new space.” This high “absorbency” is also called “shadow space,” and creates problems in the commercial market because while it may not appear to be vacant on paper, a company can grow into its shadow space without having to expand its physical location. A large residential shadow inventory also threatens to overwhelm the local housing market in 2011. As a result, job growth, considered key to any economic recovery, must grow much more in Detroit than in other areas before it has any visible effect on the real estate market.

The news is not all bad for Detroit, though. The industrial sector could actually see some new development in the coming year because new industries require specialized buildings, and there are businesses coming back to Detroit, albeit slowly. “We’re probably more optimistic than we’ve been in two or three years,” pointed out Andy Farbman, president of a Detroit commercial real estate firm.

Are you optimistic enough to invest in Detroit, or will you be buying elsewhere?

We love to hear from you. Please leave comments, questions and insights below.

---

[1] http://www.detnews.com/article/20110104/BIZ/101040321/Real-estate-rise-will-bypass-Metro-Detroit