Posted by JEREMY HAWKE on 01/28/13
Overall, we saw some improvement throughout 2012, but most businesses in the Grand Traverse region are cautiously optimistic for 2013. Uncertainty over the federal budget and taxes has a lot of business owners in a “wait and see” mood. However, the manufacturing sector saw strong and increasing demand, which resulted in many companies having some of the best years since the economic slowdown in 2008.
Northern Michigan also experienced a much-improved commercial real estate market on most fronts. By the end of 2012, most of the excess industrial space for sale had been absorbed; bringing inventories more in line with ongoing demand. On the other hand, the commercial leasing market for office and retail space continues to be soft, with a fair number of vacancies and continued downward price pressure on rental rates for most of these properties.
Businesses that are planning expansions are taking advantage of low real estate prices, and will possibly begin utilizing that space with additional capital outlays for equipment and employees in the next 12 to 18 months. However, these companies have deferred incurring additional expenses to the point where they could no longer wait. Companies are operating much leaner than they have historically, which will help them deal with expansion expenditures and, actually fuel the economy.
There has been continued investment in the energy sector, both in more traditional forms, such as oil and gas, as well as alternative energy. Low natural gas prices continue to put a damper on what has historically been Northern Michigan’s primary energy industry driver, which has refocused regional companies on other types of energy.
Banks saw a strong demand in the last quarter of 2012, as companies took advantage of current tax structure to complete some capital expansions and/or the sale of businesses or assets. This appears to be carrying into 2013 with the caveat of waiting to see what comes out of Washington. Interest rates are effectively as low as they can be, and the Federal Reserve Bank has indicated that they see no change to this until 2015.
Although banks have funds that they want to deploy in the community, they will continue to hold to conservative credit standards, which creates challenges for startup companies that are typically undercapitalized, and for companies that have had their balance sheets eroded during the past several years. The government’s continued support for, and banks utilization of the Small Business Administration’s various loan programs and the USDA’s Rural Development loan program will help keep access to money open to these companies.
As we head into 2013, Northern Michigan continues to be a destination for companies that are concerned about the quality of life for their employees. And overall, I think we will continue to see strong performance for tourism-related businesses as people seek vacation destinations closer to home.
In 2013, Michigan needs to continue to leverage its strengths to build on the growth we have seen over the past months. Northern Michigan’s geography and population base have allowed many diversified types of businesses, ranging from those related to the slow/local food movement to technology-driven companies, to finding a nurturing environment. As a result, there has been all kinds of start-up small businesses around these types of industries both in direct production and support services. West Michigan continues to diversify the industries it serves, and the southeast part of the state utilizes the manufacturing technology and expertise we have from our automotive driven past. We have a great university system throughout the state that will help drive research and innovation and bring new industries to the state. We also have an agricultural economy that is finally getting some of the attention that it deserves. As the US becomes the supermarket to the world, Michigan— especially Northern Michigan—can play a significant role.