Newmark Grubb Knight Frank (NGKF) released its fourth quarter 2015 office trends data for the Detroit region this week. According to the reports, the office market vacancy rate fell 50 basis points to 19.5 percent during the fourth quarter of 2015, as just over 268,000 square feet was absorbed. Net absorption for the year totaled just over 1.5 million square feet, which was on par with the two previous years. During the fourth quarter and throughout 2015, the bulk of positive absorption came from the Southfield and Detroit Central Business District submarkets. While most submarkets started the year strong, Livonia, Novi and Troy saw absorption tail off during the second half of the year.
“The business community in Metro Detroit is expanding and we are seeing that quarter after quarter in the Detroit CBD and Southfield office submarkets,” said Fred Liesveld, managing director of NGKF’s Detroit office.
The Detroit CBD office market vacancy fell 60 basis points to 18.2 percent during fourth-quarter 2015. Smaller leases, such as Tweddle Group’s 7,000-square-foot lease at 2111 Woodward Avenue, or Fathead, LLC’s 15,000-square-foot lease at 1201 Woodward Avenue, were the typical size leased during the quarter. Overall absorption for 2015 totaled just over 267,000 square feet, compared with 383,000 square feet in 2014 and 601,000 square feet in 2013. Major moves and investments are taking place that could create another record year for the CBD. During first-quarter 2016, Ally Financial Inc. is scheduled to occupy 321,000 square feet in the One Detroit Center. Benzinga, a financial media company, is planning on relocating its 35 employees from Southfield into the One Campus Martius building. Meanwhile, Bedrock Real Estate Services is investing $54.6 million to build out the 404,000-square-foot building at 615 West Lafayette Boulevard. Upon completion, Rock Ventures LLC plans to move 1,100 new Quicken Loan employees into the building. The Detroit CBD’s vacancy rate is likely to fall below 15 percent, a level where available space can be considered sparse and a milestone for the city.
The Southfield office market’s vacancy rate fell 40 basis points to 22.8 percent during the fourth quarter, as just over 76,000 square feet was absorbed. The bulk of positive absorption during the quarter came from Towers Watson Delaware, Inc.’s move into 49,000 square feet at Travelers Tower I and HelloWorld’s move into 46,000 square feet at 3000 Town Center. The submarket absorbed 450,000 square feet in 2015, a yearly absorption figure not seen in more than 10 years. The Class B Travelers Towers accounted for the bulk of that absorption, as large companies such MSX International, Inc., Accretive Health, Inc., Covisint Corporation and C.H. Robinson Worldwide, Inc. leased more than 250,000 square feet in the two-building complex. The revival of the Southfield office market over the past two years has mostly benefited the Class B market. Since fourth-quarter 2013, Class B vacancy fell from 32.4 percent down to 24.2 percent, as over 643,000 square feet was absorbed in that time period. The Class A market improved over the past two years, with just over 234,000 square feet of absorption and vacancy decreasing from 25.5 percent to 22.2 percent.
The Troy office market experienced another quarter with limited demand, as just over 5,000 square feet of positive absorption was recorded, leaving vacancy steady at 24.1 percent during the fourth quarter. The two largest deals were DSM Engineering Plastics’ 31,000-square-foot lease at 203 West Big Beaver Road and Fidelis SecureCare’s 20,000-square-foot lease at 800 Tower Drive, which offset new vacancies across the submarket. The previous quarter saw just over 50,000 square feet of negative absorption. The Troy submarket started 2015 strong with 141,000 square feet absorbing during the first half of the year, as companies such as St. John Providence Health Systems, Vandeveer Garzia, PC and Aerotek took large blocks of space. Overall, the submarket posted a net 94,000 square feet of positive absorption in 2015. The bulk of absorption came from the Class A market, which posted just over 71,000 square feet of absorption, lowering vacancy 220 basis points to 19.2 percent. The Class B market posted just over 22,000 square feet of absorption for the year, lowering vacancy just 20 basis points to 26.2 percent.
The Farmington Hills office market vacancy rate fell 120 basis points to 16.7 percent during fourth-quarter 2015, as a little less than 70,000 square feet was absorbed. 2015 was a milestone year for the Farmington Hills office market, as vacancy dropped to levels not seen in eight years. Google Inc.’s move into 90,000 square feet at 27555 Farmington Road accounted for the bulk of positive absorption. Farmington Hills posted positive absorption every quarter in 2015, for a total of slightly more than 246,000 square feet for the year. Google’s lease was the largest, but the average size deal was near 10,000 square feet, which points to the broad level of demand. Notable deals during the year included INOAC Interior Systems, LLC’s 15,000-square-foot lease at the Orchards Executive Park, Fujikura Automotive’s 13,000-square-foot lease at Farmington Hills Officenter and Powerhouse Gyms FX’s expansion into 10,000 square feet in Arboretum Office Park. The Class B market accounted for the bulk of overall absorption in 2015, as more than 187,000 square feet of vacant space was occupied. Class B vacancy fell from 25 percent to 18 percent in 2015. The Class A market absorbed just under 50,000 square feet in 2015, pushing the subtype’s vacancy from 17.8 percent to 16.1 percent from the beginning to the end of the year.
Livonia’s office market fell into a slump during the fourth quarter, as over 18,000 square feet of net vacant space was added to the market. Vacancy increased 60 basis points to 15.5 percent during the quarter. Stronger leasing activity during the beginning of the year kept the submarket’s total absorption for 2015 at positive 57,000 square feet. Notable deals in 2015 include Key Plastics’ 25,000-square-foot lease at Victor Park West, Success Mortgage’s 13,000-square-foot lease at Laurel Park Place Office Center and Rainbow Rehabilitation Center’s 13,000-square-foot lease at Laurel Office Park II. On the construction front, Livonia is adding its first construction project since 2012, as Schostak Brothers & Co Inc. is constructing a 70,000-square-foot office building that will act as the headquarters for Masco Corporation. The building is scheduled for completion during the first half of 2016. Livonia’s small inventory of Class A office space saw vacancies drop from 7.2 percent to 5.6 percent from the beginning to the end of the year. The Class B market’s vacancy fell 19.1 percent to 15 percent during the same timeframe.
Ann Arbor’s overall vacancy fell 200 basis points to 6.9 percent during the fourth quarter, as just over 98,000 square feet was absorbed. The bulk of absorption during the quarter came from the Briarwood Corridor, as Truven Health Analytics leased 134,000 square feet in the Wickfield Center at 100 Phoenix Drive. The large lease caused Briarwood Corridor’s vacancy to fall from 15.8 percent to 11.4 percent during the fourth quarter. For 2015, the overall Ann Arbor office market posted over 192,000 square feet of positive absorption, causing vacancy to fall 290 basis points.
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