Not Dead Yet: Commercial Real Estate Roars Back In Traverse City
Do you think offices are a thing of the past? After a 2020 decline caused by COVID-19 and related factors, Grand Traverse County’s commercial sales have increased two or even three digits year-over-year and even pre-pandemic in 2019.
Traverse City’s residential real estate market reached all-time highs in 2020, while the opposite was true for commercial real estate. As COVID-19 closings, restrictions, and general consumer fears plagued retail and restaurant businesses – and as work-from-home agreements challenged the need for office space – buying and leasing in the local retail market largely stalled.
This market looks a lot healthier in 2021. Talking about the numbers for the first seven months of the year, Kevin Endres of Three West says Kevin Endres of Three West that almost every facet of Grand Traverse County’s commercial real estate has grown dramatically this year compared to last year.
From January 1 to July 31, 294,039 square meters of commercial property were sold in the district – an increase of 111 percent compared to the same period in 2020. The average building size of the commercial properties sold (plus 39 percent) and the average sales price (plus 72 percent) also increased Percent) and the total volume of commercial real estate sold in US dollars (plus 162 percent).
The figures for individual segments of the commercial real estate market are even more surprising. Despite speculation that a pandemic-era switch to remote working could result in a long-term slowdown in the office property market, Grand Traverse County’s first seven months of the year saw sales of 75,038 square feet and $ 11.6 million of office / medical space – both by around 470 percent compared to the same point in time last year. The increases were smaller but still substantial in commercial warehouse real estate (up 65 percent in square footage and 103 percent in dollar volume) and retail / restaurant space (up 101 percent in square footage and 81 percent in dollar volume).
This year’s numbers are even higher than the times before COVID. In 2019, from January to July, Endres said “a total of 246,000 square feet of commercial property was sold in Grand Traverse County,” compared to 294,000 this year. And while Endres says some of this year’s strong numbers come from 2020 contracts that have been delayed due to the pandemic, he says that even the carryover deal is an encouraging sign that the effects of COVID on the property market have been temporary.
“Everything just stopped,” says Endres of the 2020 market. “People haven’t left and the need for commercial property hasn’t gone away, but everything has been sunk in the street. It’s not like 2008 when the whole economy collapsed and everyone just went away or had no money. The reality is that right now everyone has tons of money and the money is still cheap, interest rates are low. So I think that is driving some of them [this year’s increase]. “
The low interest rates combined with good prices mean that “it’s still cheaper” [commercial real estate] than currently leasing in our market ”, says Endres. Where peaks in demand for residential property have pushed local home prices into the stratosphere, the same trend has not been accompanied by rising commercial sales trends. In the first seven months of the year, the average square meter prices in the office / medical, industrial / warehouse and retail / restaurant segments rose by 2-11 percent compared to the previous year.
That doesn’t mean that there aren’t any new leases either. According to Marty Stevenson, a commercial realtor at EXIT Realty Paramount, Grand Traverse County has had about 100 leases so far in 2021, compared to about 65 in the same period in 2019. That increase could be a sign that some locals are professionals or businesses who are giving up their offices in 2020 are now cautiously sneaking back into the market on tiptoe. Or it “may suggest that there is less to sell” as some segments of the local commercial market are running low on inventory.
Endres agrees that storage issues are brewing in Traverse City’s commercial market – particularly in the industrial / storage segment where supply has lagged demand “for the past four years”. Coldwell Banker’s report on first and second quarter commercial sales trends also reinforces these findings, stating that “the largest increase in leases” this year over the previous two has been in the industrial sector.
Another factor that could indicate dwindling local trade stocks? The time commercial properties spend in the market. Dan Stiebel and Kayla Anderson write in Coldwell Banker’s Mid-Year Commercial Real Estate Report that “time to market (days on the market) is two weeks down from last year,” down from an average of 445 days in 2014, down from 223 days . “This means a 50 percent decrease in the average time it takes to sell a property since 2014,” write Stiebel and Anderson.
More companies and professionals considering Traverse City to expand or relocate could be driving some of these changing market dynamics.
“There is great interest from outside the region,” says Endres. “Probably more now [than before the pandemic], with people who want to leave town and move. I just signed a lease with a Fortune 500 company. They have 300 locations across the country and they have just expanded into our market and taken over a 10,000 square foot industrial building. I get calls from everywhere. Realtors from Texas and some from California. This guy was from New Jersey. I would say the bigger transactions come from outside. “
The result is that considerable commercial development is likely in the future of Traverse City. Endres says most commercial developments have stalled in 2020 due to uncertainty caused by a pandemic and extremely high construction costs. With costs falling – and with so much interest outside the city – this trend could soon change.
“We see that some of these outside investors or larger companies are actually ready to think about building a specific industry or bringing inventory into the market,” says Endres. “It’s not just users building their own buildings; I think there are some groups out there trying to figure out how to build something – maybe another industrial park – so we can meet that need for people who want to come to the area. We have a few people we spoke to who are interested. “
“I would guess with a single word that growth is to be expected,” says Stevenson. “I think our area will continue to be a magnet. We will continue to see population growth. We will continue to see an increase in sought-after jobs for young professionals. So I would say that the growth will continue to take place outside the city and that the refurbishment and growth will continue to take place in the city. “
Pictured: Four commercial properties are now for sale.