Heartland Real Estate Business

FEB 2018

Heartland Real Estate Business magazine covers the multifamily, retail, office, healthcare, industrial and hospitality sectors in the Midwest.

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www.REBusinessOnline.com Heartland Real Estate Business • February 2018 • 29 fice demand as millennials age. "Peak millennial births were in 1990 at 4.2 million, which means they are almost 28 years old and in peak family formation," he says. "As families are formed, the desire for a shorter com- mute will entice millennials to look to the suburbs." Motor City diversifies Despite a slowdown in the growth of auto sales, job growth continued to increase in metro Detroit toward the end of 2017, according to Cushman & Wakefield. A diversifying economy was the catalyst for the growth. Healthy demand for office space has enabled the market to absorb 643,693 square feet in the fourth quarter, ac- cording to CBRE. Growth markets are really impor- tant for the value-add business of filling space, says Shoemaker. In ad- dition to suburban Chicago, Franklin Partners has invested in Grand Rap- ids in West Michigan for years. The overall office vacancy rate in metro Detroit stood at 13.6 percent at the end of 2017, down 290 basis points from the same period a year earlier, according to Cushman & Wakefield. Among major transactions in met- ro Detroit's office market during the fourth quarter was Beaumont Health Center's purchase of First Center Of- fice Plaza in Southfield, a northern suburb of Detroit. The health company plans to consolidate and move 3,000 employees into the 640,000-square- foot building by the end of this year. Andy Gutman, president of South- field-based Farbman Group, says he believes the acquisition of suburban office buildings will continue to be a trend in 2018 as investors look for a better return than they can achieve downtown. Farbman Group owns Oakland Commons, a two-building office property in Southfield. In 2017, the firm completed a renovation of the property, including the addition of a 24-hour fitness center that features a shower room and lockers. Lesley Gutman, vice president of office brokerage at Farbman, says the company would like to incorporate some group fitness classes such as yoga and Pilates at the property in the near future. She adds that fitness centers, modern common areas and self-checkout caf- eterias are amenities currently trend- ing high among tenants. At Sheffield Office Park in Troy, Farbman Group has implemented a self-checkout mar- ket concept at the 500,000-square-foot property. Tenants are able to purchase coffee, salads, sandwiches and other fresh items. Something to keep an eye on in the future is the appetite for co-working spaces in the suburbs, says Andy Gut- man. Companies such as WeWork, a shared workspace for entrepreneurs, freelancers, startups and small busi- nesses, have been rapidly expanding and leasing up office space. "Co-working spaces continue to cre- ate relationships that have resulted in Fortune 500 companies dropping into these spaces due to the flexibility, build- out and convenience," he explains. Building boom in St. Louis In the fall of 2017, Franklin Part- ners made its mark in the St. Louis suburban office market. The compa- ny acquired The Plaza at Clayton, a 325,172-square-foot office building in Clayton, about nine miles west of St. Louis. Franklin Partners acquired $85.3 million worth of office buildings in suburban St. Louis during 2017, mak- ing the investor among the most ac- tive buyers in the market for the year, according to Real Capital Analytics. According to Shoemaker, The Plaza was a less traditional acquisition for the firm, as it was fully leased at the time of purchase. "The Plaza is more of a stabilized long-term hold. It's an anomaly for us and what we do in suburban Chicago and West Michigan," he explains. The lack of supply in the market and quality of the building drew Franklin Partners to the asset, accord- ing to Shoemaker. He says that the Class A office vacancy rate in Clayton has been low for years, typically less than 10 percent. The overall vacancy rate for the St. Louis office market was 11.7 percent at the end of 2017, accord- ing to Cushman & Wakefield. "Clayton lacks any blocks of vacant available space over 30,000 square feet in either Class A or B for the 14th con- secutive quarter as demand continues to outpace supply," states Cushman & Wakefield's fourth-quarter report. Tenant demand for office space in suburban St. Louis in 2018 remains positive, especially in Class A prop- erties, says Carl Conceller, principal with NAI Desco in St. Louis. Class B properties will also continue to pro- vide opportunities for tenants, in his view. According to Conceller, property owners may begin to encounter some challenges leasing up space in 2019 when new projects such as Centene Corp.'s headquarters in Clayton near delivery. About 140,000 square feet will be available for lease with the remainder of the 500,000-square-foot office space being utilized by Cen- tene. Phase II of The Boulevard in Rich- mond Heights, located about eight miles west of St. Louis, is slated to deliver in 2019. The project will add approximately 200,000 square feet of Class A office space to the existing mix of office, retail and multifamily space. Conceller expects to see more live/ work/play developments built in the suburbs moving forward, and cites the Streets of St. Charles as a good example. Cullinan Properties Ltd. has unveiled plans for the proj- ect's next phase, which includes a 60,000-square-foot building designed to accommodate more retail and office tenants. Located about 25 miles north- west of St. Louis, the first phase of the project opened in 2012. Looking ahead to the rest of 2018, Conceller anticipates ample opportu- nities for sellers in the St. Louis sub- urban office market. "The market en- vironment is very favorable to sellers who have the opportunity to achieve attractive prices in a market with lim- ited opportunities." n Please contact us for any upcoming project needs! 847.374.9200 · www.meridiandb.com DESIGN BUILD · GENERAL CONTRACTING CONSTRUCTION MANAGEMENT Think of us for your next Food and Beverage project... Ask us how we can help you incorporate sustainability into your next project! UNDER CONSTRUCTION... Manitowoc, WI - 66,000 SF ARCHITECT: Harris Architects CIVIL ENGINEER: Pinnacle Engineering Red Arrow Expansion In addition to a self-checkout food market at Sheffield Office Park in Troy, Michigan, tenants are also able to check out bikes for free.

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