Midwest real estate markets are enjoying a long-running development cycle. That commercial construction boom has been sustained for several years in some cities, and 2000 is expected to be another active year. "The economy continues to be very strong in the Midwest," says Jonathan Malm, vice president of McShane Corp., the development arm of the Rosemont, Ill.-based McShane Cos. Although pockets of oversupply have emerged throughout Midwest markets, the big picture reflects a stable market with a good balance between supply and demand. "Inventory continues to be developed at a pace that is absorbed, so we don't have an overbuilding scenario," Malm says of Chicago.

The common denominator driving activity throughout the Midwest is corporate expansion. That business growth is evident in continued high employment. The unemployment rate for the Midwest dropped from 3.8% in October 1998 to 3.6% in October 1999, compared with a national decline from 4.5% to 4.1% over the same period, according to the Federal Reserve Bank of Chicago. Businesses are not only adding new employees, but they also are looking for more room to house them. Positive corporate earnings and a good showing on Wall Street are giving many firms the capital they need to expand.

"A lot of the activity that's occurring in the Minneapolis area is a direct result of various market segments that are accelerating and growing," says Tim Murnane, vice president at Opus Northwest LLC in Minnetonka, Minn. Financial services and consumer products are two sectors that are rapidly expanding in the Twin Cities region. Minneapolis-based American Express Financial Advisors, for example, has two office towers under construction in the Minneapolis CBD. The firm's 850,000 sq. ft. corporate headquarters will be ready for occupancy in the third quarter, and a 900,000 sq. ft. service center is slated for completion in early 2002.

E-commerce business is starting to penetrate the Midwest in the form of warehouse users who need to deal with their e-commerce inventory. In addition, the rapid growth of high-tech firms ranging from Internet start-ups to giant telecommunications firms is increasing the demand for space. St. Louis, for example, ranks second in the country for its growth in information technology start-ups.

"We see technology companies burgeoning here," says Burt Follman, chairman and CEO of St. Louis-based Follman Properties*ONCOR International. Follman Properties recently represented an eight-person start-up that was spun off from another local technology company. "We thought they would need 5,000 sq. ft.," says Follman. "They leased 20,000 sq. ft., and within 60 days went from 8 to 35 employees."

Chicago An ample supply of new buildings is satisfying the appetite for new space in Chicago, but a number of corporate relocations during the past few years and a glut of announced projects that may or may not be developed leave many developers jittery.

Metropolitan Chicago's unemployment rate dropped from 4% in October 1998 to 3.8% in October 1999, according to the Federal Reserve Bank of Chicago. Statewide, the civilian labor force increased 1.8% from 6.25 million in October 1998 to 6.36 million in October 1999. "I think the market is healthier than anyone's ever seen. I don't see a lot of signs of overdevelopment yet," says Randy Podolsky, a principal at Podolsky Northstar Realty Partners LLC in Riverwoods, Ill.

Nearly 2.3 million sq. ft. of new office space is under construction in the Chicago CBD, while an estimated 4.3 million sq. ft. of office space was being developed in the suburbs as of third quarter 1999, according to the Chicago office of New York-based Cushman & Wakefield. Growth among technology and communications firms is fueling much of the new construction. Cantera in Warrenville is one business park that attracted considerable interest from technology firms, according to McShane's Malm.

For example, Tellabs Inc. walked in and initiated a 137,000 sq. ft. deal that was completed within 60 days. Phase one of the two-building project is set for a January completion, with phase two slated for a March finish. Tellabs also purchased 55 acres in Naperville to build an 800,000 sq. ft. headquarters. In addition, the city of Chicago is backing an effort to attract high-tech companies to the outskirts of the CBD. Functionally obsolete buildings are being converted to state-of-the-art space that caters to technology-oriented users. Projects include the 1 million sq. ft. conversion of the former R.R. Donnelly Building into Lake Technology Center and the redevelopment of Goose Island.

Strong leasing activity in the CBD helped push office vacancies down to 10.5% from 12.2% a year ago, according to Cushman & Wakefield. "I think we're in a neutral and very good position downtown," says Bart Woloson, director of Cushman & Wakefield in Chicago. However, with four new office buildings under way, over-development is a growing concern. Downtown absorption topped 1.6 million sq. ft. in 1999, and even more space is on the way with sizable projects such as the 1.3 million sq. ft. One North Wacker Drive building. About 2.2 million sq. ft. of office space is expected to come online in 2000.

"The fear of overbuilding in downtown Chicago is something that's in the back of every developer and lender's mind," says Mark Robbins, executive vice president of Chicago-based Transwestern Commercial Services. "It's part of the reason that maybe 15 projects have been announced, but only one's broken ground (One North Wacker). Everybody's waiting for 'X%' preleased because none of the developers wants to give what the lenders require in terms of equity, and they really don't want to be a fee developer. The y want to control equity in the project."

Adds Transwestern executive vice president Phil Utigard, "You take a look at those deals that are about to come up for renewal, and you'd say that there will be a lot of deals taking place in the marketplace. But net absorption in the CBD is only about 1 million sq. ft. of Class-A space," he says. "Although rents have gone up over the last five years, over the last 12 months or so they've stalled. And they've stalled below net rents that are going to be demanded in order to get a building financed, which are in the mid- to upper-$20-range net."

"What Chicago needs is an influx of new tenants," Utigard adds. "Some of the initiatives that are taking place in the city to try and bring in and incubate high-technology users and to bring in out-of-state technology gazelles, hopefully, those efforts are going to bear fruit."

Construction is even more robust in the suburbs with 6.7 million sq. ft. added in 1999. Even with brisk leasing, year-end vacancies rose to 10.5% compared with a rate of 8.6% the previous year, according to Cushman & Wakefield. Meanwhile, an additional 3.5 million sq. ft. of space is under construction. "The suburban office market could get worse before it gets better," Woloson notes.

Downtown Chicago office sales in 1999 amounted to about half the volume the market saw in 1998, largely due to a slowdown in REIT investment. Sale prices remained steady for downtown Class-B space at about $100 per sq. ft., as Class-A rates dropped from a high of $206 per sq. ft. in 1998 to about $175 per sq. ft. in 1999, Woloson says. Investors are proceeding cautiously on suburban office projects due to the surplus of space that has been built, he says. The barriers to entry in new apartment construction have created an attractive investment market in the multifamily sector. New construction is limited due to zoning constraints and high construction costs. Meanwhile, rental rates continue to rise, and occupancies are averaging 97% to 98%. Cap rates on Class-A apartment properties are about 8.5%, while cap rates on Class-B and Class-C properties are at 9% to 9.5%.

Still, CBD condo development also is about to hit unprecedented levels, says Michael Stein, executive vice president and head of Chicago-based Corus Bank's real estate group. Chicago faces similar inward migration trends that are affecting America's urban landscape.

"There's probably between 10 and 15 high-rise condo construction deals that we'll get financed and done in the coming year in and around the Loop," says Stein. "There's a big demographic shift with people moving back downtown, and that could support it financially. There have been some widely publicized deals where residential high-rises sold out in a day or two.

"To pull that off, they're accepting some investor buys, but the market appears to be extremely strong on the residential side," Stein adds.

In Chicago's massive industrial/distribution market, expansion driven by e-commerce and large logistics companies are contributing to big-box construction.

"Right now, the manufacturing and logistics companies are just going along at full throttle," says Tom Boyle, vice president of The Alter Group, Lincolnwood, Ill. "We have these logistics companies that are creating new types of warehouse facilities every six months, meaning that three years ago you would have seen a 250,000 sq. ft. facility where now you're seeing a 400,000 sq. ft. to 500,000 sq. ft. structure. A 500,000 sq. ft. facility is big, and that's a finite market of users.

"But what we're finding is that, with all these logistics companies popping up, there are more users," Boyle says.

Both the I-80 and I-55 corridors have experienced a significant surge in development of distribution buildings as well as some single-story office development, Malm says. "A lot of the in-fill sites are being developed for multi-tenant industrial with total building size of 50,000 to 100,000 sq. ft.," he says. Chicago ranks second among the top 10 metro areas for new/expanded distribution centers since 1990, according to the March 1999 issue of Site Selection magazine. The area is home to more than 280 distribution centers. Industrial vacancy rates in the Chicago area averaged 5.5% as of third quarter 1999, according to Cushman & Wakefield.

But while the Chicagoland industrial/distribution market continues to sizzle, margins have become razor thin, Boyle says.

"Rents are not going up, however land costs and construction costs are," he says. "So that is paring returns for the industrial developer. This, coupled with the amount of competition in the market, means that developers are fighting for returns.

"We are at the edge of competition," Boyle adds.

Detroit Record auto sales in 1999 are driving much of the business expansion in Detroit. "Things look fantastic," says Bruce A. Morrison, director of investment sales at Signature Associates Inc. in Southfield, Mich. The record year of auto sales certainly bodes well for the Detroit economy, but the metro area also is enjoying steady growth in a variety of other sectors.

The Detroit metro area is home to more than 5.3 million people and an increasingly diverse business base. Major automotive firms such as General Motors Corp., Ford Motor Co. and Daimler Chrysler Corp. are joined by a variety of Fortune 500 companies such as Kmart, Lear Seating, CMS Energy Corp. and Kelly Services.

"Everyone looks at Detroit and thinks if the cars sell or don't sell, the economy goes up and down like a yo-yo," Morrison says. "That is simply not the case. When Chrysler went into bankruptcy in the early 1980s, Detroit spent 10 years diversifying and changing the way it did business. As a result, Detroit has an increasingly stable economy."

Both 1998 and 1999 have been active development years in Detroit. About 2 million sq. ft. of office space was either started or completed in 1999, according to Michael Moran, a partner with Colliers International in Bingham Farms, Mich. "This wave of development started in mid-1998. Prior to that there wasn't any development for eight or nine years," Moran says. Despite the return of new office development, suburban vacancies remain low at about 6%. The majority of new space, about 1.2 million sq. ft., is being built in Troy, Mich. One of the most significant projects in Troy is the 275,000 sq. ft. Columbia Center II, which will be ready for occupancy in May. However, available land is becoming more difficult to find. "The markets are really moving north because land is maxed-out in Troy," Moran says. The picture is not so rosy in the Detroit CBD where vacancies hit 18.4%, largely due to significant vacancies in older Class-B and Class-C space. One major project under construction in downtown is Compuware Corp.'s new 1.2 million sq. ft. headquarters. Compuware plans to relocate from Farmington Hills.

Recently, Detroit has piqued the interest of national investors. "As other markets became overheated with REITs, a lot of people who were coming here could see big discounts in prices with basically the same building, same asset quality and same tenant," Morrison says. Investors were coming to Detroit to find cap rates at 10% compared to a 9% cap rate in other areas such as Chicago, Morrison says. Currently, cap rates in the Detroit area are in the 9% to 9.5% range, he says.

Asking sale prices for metro Detroit industrial properties reached new highs in third-quarter 1999. Prices averaged $36.34 per sq. ft. - a 50% jump over asking prices in third-quarter 1998, according to Colliers International. The price increase is due to strong demand and lack of available space. Despite the more than 4.5 million sq. ft. of new spec warehouse/manufacturing space added in 1999 through the third quarter, overall industrial vacancies were at 6.9%, according to Colliers International. Some submarkets are even tighter. Sterling Heights, for example, posted vacancies of just 1.2%. Little industrial land is available among the established corridors. Instead, developers are pushing farther out into the suburbs.

Office and industrial tenants who leased in Detroit and its suburbs five to 10 years ago may be in for a surprise when it's time to look at renewal, says Doug Fura, vice president and director of brokerage at The Farbman Group, Southfield, Mich.

"We're in the fifth year of a pretty good real estate cycle," says Fura. "We expect a fair amount of turnover this year on leases that were done four or five years ago. Coming back to the market, there's going to be some sticker shock.

"There are going to be some tenants shopping around when renewal time comes around," Fura adds. "They may not get better deals, but they're going to want to look."

Strong occupancies and rising rates coupled with barriers to new development have created a very attractive environment for apartment investors in Detroit. "It's been a tough market to develop in," says Mark Rohr, a senior vice president at The Dietz Organization in Birmingham, Mich. "What the local communities have determined is that you really don't win on zoning. You just postpone it, which raises the entitlement costs," Rohr says. "That has dramatically stunted apartment development."

In most instances, those that possess appropriate zoning choose to build for-sale condos vs. apartments. Detroit has barely 2,000 apartment units under construction, a significant number of which are tax-credit projects. In contrast, Columbus, Ohio - with a metro area population of 1.6 million - has close to 6,000 units under construction, Rohr says. Apartment sales are averaging $43,000 per unit. However, most of those sales involve properties that were built in the 1970s or early 1980s.

Minneapolis Record low unemployment could derail expansion in the Minneapolis-St. Paul area. The Twin Cities has one of the tightest labor markets in the country with an unemployment rate of less than 2%. But so far Minneapolis-St. Paul employers are overcoming the labor constraints. An estimated 46,900 jobs were added in the period from May 1998 through May 1999 - a 2.8% increase in non-farm employment, according to the Minnesota Department of Economic Security. A growing population and access to a large, highly- educated workforce are two factors helping to offset labor concerns. About 2.7 million people - 58% of the state's population - live in the 13-county metropolitan area, according to the Greater Minneapolis Chamber of Commerce.

The growing business base is pushing office development to peak levels in the Minneapolis CBD and suburbs, while even St. Paul has seen a resurgence in construction with new corporate headquarters projects such as a 370,000 sq. ft. building anchored by St. Paul-based Lawson Software. "I think we're still in a pretty good growth mode," says Kent Carlson, vice president of Minneapolis-based Ryan Cos. US Inc. The service companies in particular - the law firms, accounting groups and advertising agencies - are all going strong, Carlson says. Major corporate expansions such as Target and US Bancorp are responsible for much of the development. But even medium-size firms are consuming sizable blocks of space. The Minneapolis law firm of Dorsey & Whitney, for example, will occupy about one-third of the 640,000 sq. ft. of office space available in Fifty South 6th, a new office tower Houston-based Hines is building in downtown Minneapolis.

The Minneapolis CBD is the hot spot, with about 4 million sq. ft. of space coming online within the next two years. The flood of space is expected to cause vacancies to spike. "I think the conventional wisdom is pegging vacancies to reach the 14% to 16% range," says Opus' Murnane. However, all of the new towers are leasing well. "At the end of the day, what you end up with are projects that are primarily build-to-suit in nature, or have a large component pre-leased," he says. Those buildings that will be hardest hit are the older towers that are losing tenants such as American Express to new facilities.

The most active suburban markets include the west metro along I-394 and the southwest metro along the I-494 corridor. New space in the west metro could drive vacancies up from 8% in 1999 to near 15% in 2000. Vacancies in the southwest metro were still under 8% as of third-quarter 1999, despite the construction of several new office projects. "The southwest has been the powerhouse of the Twin Cities for such a long time that it continues to absorb space pretty routinely," Murnane says. However, Bloomington, Minn.-based United Properties, Indianapolis-based Duke- Weeks and Ryan all have projects under way in that submarket that will add about 1 million sq. ft. of space over the next year.

The Twin Cities industrial market appears to be leveling off after two years of active construction. The 2.9 million sq. ft. of space absorbed through the third quarter of 1999 was considerably less than the 4.4 million sq. ft. absorbed over the same period in 1998. Vacancies also rose to 8.6% in the third quarter compared with the 7.2% reported at the same time in 1998, according to a market report produced by Minneapolis-based Colliers Towle Real Estate. "Developers are a little more cautious, so there's not as much spec development," Carlson says. Construction activity has slowed from the boom that the market experienced in 1997 and 1998. However, the volume of industrial projects under construction, planned or proposed was still a healthy 3.8 million sq. ft. as of third-quarter 1999.

Multifamily development has finally returned to the Twin Cities after a long, dry spell that extended through much of the 1990s. Continued tax reforms introduced by the Minnesota State Legislature are helping to lessen the tax burden on apartment owners. That tax reduction, coupled with rising rents and high occupancies, is behind the resurgence in new construction. Occupancies have been hovering at about 98% in recent years. Nearly three dozen market-rate and senior projects ranging in size from 16 to 336 units are under construction or proposed throughout the metro area.

Omaha Businesses gearing up for expansion and relocation are discovering fewer choices in the Omaha market.

The Omaha metro area spans five counties and is home to 693,600 people. The region has added more than 73,500 jobs from 1990 to 1998, and the unemployment rate has dipped to 2.5%, according to the Greater Omaha Chamber of Commerce. Significant absorption in the suburban office market has occurred since July 1999, and overall office vacancies declined from 10% to 8%, according to locally based The Lund Co. Corporate expansion on the part of firms such as Ameritrade, Inacom, and West Teleservices are responsible for much of that absorption. "Those particular tenants have been taking up quite a bit of space," says Nancy K. Johnson, a principal at The Lund Co.

Single-tenant users helped to consume the space resulting from record-breaking suburban office development in 1998. Meanwhile, CBD vacancies remained at or near a record low of 5.4%. Although new multi-tenant construction has been slow to emerge in Omaha's CBD, several large tenant-driven properties are under way. One such project under construction is the 576,000 sq. ft. First National Center, which is set for a late 2002 completion, according to a market report by Grubb & Ellis Pacific Realty Commercial in Omaha.

Omaha's technology and communications companies have left Y2K fears behind, and are now moving forward with 2000 expansion plans, Johnson states. However, companies looking to expand or relocate are discovering fewer options, particularly for large blocks of space.

Even second-generation space is in strong demand. Tenant concessions remain at a minimum, and landlords are successfully locking tenants into lease renewals with five, seven and 10-year terms. Additional new construction will help to alleviate the space constraints. Linden Place II, an approximately 60,000 sq. ft., four-story, Class-A office building will be available for occupancy this fall. A new 45,000 sq. ft. Class-A office building planned for 132nd and West Dodge Road is slated to open this quarter. In addition, high occupancies are prompting some firms to build their own corporatecampuses. "I think some of these larger campuses want to control their real estate, and they want new buildings that are more user-friendly in terms of fiber optics and cable requirements," Johnson says.

In 1999, industrial activity reflected Omaha's current growth phase. Development activity has been strong along I-80, including the new 350,000 sq. ft. Caterpillar Claas manufacturing facility. The I-80 corridor will continue to generate the lion's share of industrial activity into 2000 and beyond with more than 3,000 acres zoned for industrial use at the end of 1999, according to Grubb & Ellis Pacific Realty. Development of smaller sites continues within the Omaha/Metro-Douglas County area, while mixed-use projects and smaller flex product comprised most of the west/central metro activity. Year-end 1999 industrial vacancies averaged 8.5% for industrial, R&D and flex space.

Investors are finding inflated sale prices due to a surge in 1031 exchange activity. "People are paying $120 to $140 per sq. ft. just so they can avoid a tax gain," says Johnson. Construction costs for those buildings were closer to $100 to $110 per sq. ft. to build. "Some of these buyers are not typically sophisticated real estate buyers, so they might spend more than is reasonable for some of these buildings," she says.

Apartment construction over the past two to three years is starting to soften the market. "Several communities have come on board with new properties in the last year," says Beverly Ellis, director of residential property management for The Lund Co. New properties include both Class-A and B+ product. "I believe we're getting close to the saturation point due to the construction that has occurred in recent years," Ellis says. More than 5,000 new multifamily units were added to the Omaha market in 1997 and 1998, while some 900 units were added in 1999, according to a market report by Grubb & Ellis Pacific Realty. For the most part, occupancies range from 90% to 95%.

St. Louis Developers are struggling to keep up with the demand for space in the St. Louis area. The St. Louis region has added more than 90,000 new jobs in the past four years. Some of the strongest sectors include technology, biotechnology, services and transportation. "The market remains relatively robust, but it is softer than one year ago," Follman says. Downtown Class-A vacancies over the last 12 months dropped slightly from 8.6% to about 8.34%, while suburban office vacancies rose from approximately 6% in January 1999 to 6.9% at year-end, Follman notes. "It is a very mild, upward creep, but there also has been a substantial amount of new construction that has been absorbed," he says. About 1.4 million sq. ft. of office space is under construction, primarily in Clayton and the suburbs.

Large corporations are pushing sizable projects, including a new 600,000 sq. ft. corporate campus for MasterCard International. The new O'Fallon campus will give MasterCard room to expand and consolidate from other locations in the St. Louis area. Another major project in the works is a new 400,000 sq. ft. regional operations center being built for MCI WorldCom in Weldon Spring. "We are seeing spec development, but not much new spec development," Follman says. Currently about four spec projects are under way, including a 350,000 sq. ft. office complex at Timberlake Corporate Center in Chesterfield.

On the industrial side, low vacancies are sparking new construction. The St. Louis market is comprised of about 210 million sq. ft., and vacancy is down to 3%. In addition, some of that vacant space is functionally obsolete, Follman notes. One area that has traditionally attracted the most industrial expansion is Earth City, a 1,600-acre business park that originated in the 1970s. Most of the land has been absorbed. The land that remains, about 150 acres, is controlled primarily by Duke-Weeks.

However, locally-based Clayco Construction Co. is another firm that has been active in Earth City with the construction of Corporate Woods Office Park, a three-building, $40 million office complex. Industrial developers continue to move farther out in search of available land, and Fountain Lakes is one business park luring spillover development from Earth City. In addition, the new I-370 is opening up the Chesterfield Valley area for development. Clayco is nearing completion on a new corporate headquarters/production facility for Craftsmen Industries Inc. at Elm Point Road and I-370 in St. Charles.

St. Louis had several major sales in 1999. "Land scarcity is unique to our market, and because of that we're seeing institutions that are willing to pay very close to replacement cost," says Lawrence Reed, executive vice president and head of institutional investments at locally-based Colliers Turley Martin Tucker Co. The 174,000 sq. ft. Class-A Bemis Building in Clayton sold for $148 per sq. ft., while the 49,000 sq. ft. Emerald Point in Chesterfield sold for $108 per sq. ft. However, in the past two months at least two high-profile projects have been withdrawn from the market due to lower than desired offers.

St. Louis' small supply of zoned land for apartment construction creates significant barriers to development. In addition, apartments compete with an affordable housing market, where single family homes can still be found for $120,000 in St. Charles County, says Michael C. Mullenix, president of Mullenix Apartment Homes, a division of the St. Louis-based Mullenix Cos.

Mullenix Apartment Homes focuses the bulk of its new projects on high-amenity, Class-A projects. The addition of major tenants to O'Fallon prompted Mullenix to build two new apartment projects. MasterCard is expected to move approximately 2,000 employees to its new O'Fallon facility. Mullenix is building the 253-unit Mallard's Landing, a $17 million gated community, and the 376-unit Pheasant Point, a $29 million project.

Across the board, Midwestern suburbs and CBDs have fared well over the past few years, especially in cities such as Detroit and St. Louis where economic diversification and the resurgent auto industry have been the silver lining for what was a gloomy outlook not so long ago. That diversification fed the rebound of commercial real estate markets in all sectors, from CBD condo and loft development in Minneapolis and Chicago to office and industrial development throughout the region.

Much like Punxsutawny Phil, the February groundhog, Chicago may very well show us what the next decade holds for commercial real estate markets in the Midwest and throughout the nation. No matter what sector, continued high levels of leasing and construction in Chicago may be a sign of continued prosperity from coast to coast. A softening in Chicago may serve as a warning sign for everyone.

People have been flocking to Traverse Bay for years for the sole purpose of enjoying a vacation or weekend getaway in this Lake Michigan resort area. But the recent surge in traffic is of a more permanent nature.

The Traverse Bay region has become one of Michigan's fastest-growing areas. The 1998 population was estimated at 123,522 - up 16% over 1990, according to the Traverse Bay Economic Development Corp. The growing population base is driven largely by a migration of people in their 30s and 40s. "Oftentimes, it is the CEO who has vacationed up here for 10 years and is deciding to relocate his business here," says Mike Schmidt, a senior vice president in the commercial division of Coldwell Banker Commercial Schmidt Realtors in Traverse City. "It's really a booming economy here."

Employment among the civilian labor force has jumped from 56,650 in 1990 to 72,700 in 1998, according to the Michigan Department of Career Development. Some of the most rapidly growing sectors include construction, which had a 46% increase in its workforce from 1990 to 1998. Finance, insurance and real estate is another strong sector with an increase of 40%. Overall, employment growth in the region increased 52% from 1989 to 1998, compared with a 14% increase statewide. Manufacturing employment growth increased 30% for the region during the same period, while the state experienced a 1% growth rate, according to the Traverse Bay Economic Development Corp.

The commercial boom is due in part to a targeted effort by the Traverse Bay Economic Development Corp. In 1989, the economic development agency launched a four-county economic development strategy to create jobs and increase the local tax base. The four counties in the region include Benzie, Grand Traverse, Kalkaska and Leelanau. The strategy was designed during a period of high unemployment, low wages and an unsatisfactory tax base. The resulting growth has far exceeded the development corporation's expectations. "We're three years ahead of what we projected," says Charles Blankenship, president of the Traverse Bay Economic Development Corp. in Traverse City.

Over the past five years, 240 acres in three fully-served industrial parks have been developed and sold. The area's reliable, skilled workforce and relatively low real estate costs have attracted companies to Traverse Bay. Full-service industrial lots sell for about $37,000 per acre compared with prices in Chicago and Detroit that reach upwards of $100,000 per acre.

"Our major problem is that we're so successful that we've run out of land," says Blankenship. Although Traverse Bay has plenty of land available, activity has slowed while new industrial parks are readied for development. Nearly 230 acres in three parks are in the works, and the first parcels will come online this spring.

The industrial growth is creating significant spin-off development in office, retail and housing sectors. In downtown Traverse City alone, more than 120,000 sq. ft. of office space broke ground or was built in 1999. Projects include River's Edge, an eight-building, mixed-use project that so far has added about 33,000 sq. ft. of office space; the 36,000 sq. ft. City Centre Plaza; 30,000 sq. ft. Harbor View Centre; and a 34,000 sq. ft. project planned for the Kraus Tire site.

The majority of new housing focuses on high-end homes and luxury condos. However, more affordable housing is anticipated for 2000, which will provide needed housing for the income level of an average working family, Blankenship notes.