The Effect of the Pandemic and Issues with Our Country on Detroit Real Estate

Lisa Virkus – Founder Realty in the D

I’m Lisa Virkus, founder of Realty in the D. Realty in the D specializes in helping our clients buy and sell real estate in the city of Detroit. I want to share some thoughts on how the pandemic and unrest in our country has impacted Detroit real estate.

One of the trends Realty in the D is seeing with our current listings is very heavy positive activity on Zillow, in respect to “viewings” and “saves”,  but not many showings or real buyer activity. Taking from my own experience as a Realtor and in speaking with several other agents this is what we have learned about what may be going on:

Current Situation

There is a recent trend happening around the country of homeowners moving out of big cities. This appears to be due to the significant spike in violent protests, crime/murders and the perceived instability with the police. For example, one agent I recently spoke with said in just the last month he has sold homes to four different buyers leaving Chicago to come back to Michigan because they don’t want to be in a major city anymore. They returned to Michigan to live in the suburbs. In this case Berkley and Royal Oak. They just wanted to get out of the city and back to “normality”.

How Does the City of Detroit Compare to Other Major Cities

Although Detroit has seen some of the same issues as the rest of the country, we have not experienced the same magnitude of inner city issues as other major cities. I live in the city of Detroit and can attest to this first hand. Our community is focused on continuing the recovery of our city. Not destroying it. Unfortunately this does not get highlighted in the Media as good news doesn’t generally sell and I think Detroit may be “guilty by association” as a big city.

Up until the pandemic, Detroit’s residential real estate market was one of the fastest growing in the country. As I mentioned earlier, we still have significant activity, just not a lot of buyers willing to pull the trigger. My only rationale for the dis link is buyers that were looking to move from the suburbs to the city are still actively looking but taking a pause in their buy decision until they see how things shake out with the instability with our country and the pandemic.

Read So Who is Actually Moving to Detroit

How to Approach the Detroit Market Today

If you are a believer that the current unrest with the country is a short term issue and people will return to normality…

• If you are selling, hold your prices at fair value and be patient.
• If you are a buyer, become aggressive and look for buying opportunities as sellers start to panic. Be strategic and focus on the areas that were the strongest before the instability with our country and the pandemic. These areas will be the first to surge.

If you are a believer that the current unrest with the country is a long term issue…

• If you are a seller, be decisive and don’t wait around. Determine what the lowest price is that you would be willing to sell. Then start systematically reducing your price every week in minor increments until you get to your bottom line. If your property has not sold by then, re-evaluate whether your original lowest price is still your lowest price. If not, continue to systematically reduce the price. If your original lowest price you are willing to sell has not changed, then now sit tight and continue to evaluate the current state of the country and react accordingly.
• If you are a buyer, start researching your target areas and establish the trigger point to get you back into the market. Once you hit that point, be decisive and start strategically buying.

What is Our Opinion of the Detroit Real Estate Market?

The pandemic has had a major impact on how we work and play. The world has changed. Only time will tell what the major surviving trends will be. Some thoughts on what we believe…

• We believe the issues with the country are not long term issues.
• We believe the country is strong.
• We believe we will find a vaccine for Covid-19.
• We believe the country will put aside its differences and come back stronger than ever in an overwhelming united fashion.

That said, we believe a significant issue in commercial real estate is unavoidable. Especially in the suburbs.

Many companies are moving to a split between work at home and work at the office strategy. This will cause the demand for office space to significant decline in the short term. How companies will operate when this all blows over is to be determined.

Many smaller, and larger, retailers will not make it through the pandemic. This will obviously cause a major decline in demand for retail space. The biggest impact will be in smaller strip malls. These types of properties are typically occupied by an anchor tenant such as a grocery store and then many small local retailers. These are the types of tenants that unfortunately are not going to make it through the pandemic. We believe a lot of the vacant space will be re-purposed. Just not sure to what? It will be interesting to see.

Commercial real estate in the suburbs will be impacted the most. Over the past five years there has been significant over building in Detroit’s suburbs in both office and retail space. Most of this was in “anticipation” of demand. A lot of the suburbs current tenants are not going to make it through the pandemic. And the anticipated demand simply won’t be there in the short term. Point being is there is going to be a lot of vacant space that is going to be vary difficult to fill.

The city of Detroit on the other hand just started to build more commercial space. This was in response to high “current” demand and “no” supply of available space. Detroit does not have the overbuild of commercial space that the suburbs have.

We believe the remaining demand for office and retail space will divert from the suburbs to the city. This is for two reasons:

• First – The highest populated major cities across the country have been the most impacted by the pandemic. The shut down of the economy and the stay home focus shut down all office and retail space in these cities. People just stopped going to the city. No reason to go… These cities have also been the focus protests and unfortunately some protests that have gone bad. We believe the government recognizes the need to bring our major cities back to save the economy. In an effort to save these cities, we believe there will be major incentives given from the federal government to attract business’ and retail back to these cities. Detroit will be a direct benefactor of this as we are one of the most important cities in the country. Unfortunately we don’t believe the suburbs will be the focus of this federal rescue.
• Second – Commercial space feeds off of commercial space. Business’ rent space based on density and how each tenant can feed off the other for business. Most of the commercial space in the suburbs is horizontally spread out -vs- the city where things are vertically spread out creating more intense density per land size. The vacancy in the suburbs being so geographically spread out, will cause commercial space density issues. And have a major impact on attracting new tenants to fill the vacant space. On the flip side, the vertical density of the city, regardless of vacancy numbers, provides a much more dense space related to the geographical size. Causing the space to be more desirable to potential tenants.

Bottom line – The potential for federal incentives focused on saving the cities and post pandemic demand for office and retail space searching for the best place to locate may have a major positive impact on the continued growth of the city of Detroit.

So How Does this Impact Detroit Residential Real Estate

It’s pretty simple.

• Most people still want to be by the action. Especially the younger generation. The city is where the major action always has been and again will be post pandemic.
• In the event a worker is splitting time between the home office and the actual office, they will want to be closer to the office rather than further away. This worker is no longer committed to a certain scheduled commute, but will have to accept a more reactive schedule where they may need to make a special quick trip to the office for a meeting and then back to the home office. If his or her office is located in the city, they are going to want to live close to the city.
• If the focus of commercial space and density is drawn to the city, the residential market in Detroit should remain very strong. Point being…there is still tremendous value in the Detroit residential real estate market -vs- the suburbs and being located closer to the action and/or your office is where most people want to be post pandemic.

That’s our opinion!

Read Why it’s Time to Sell Your Home in the Suburbs and Move to Detroit

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