Metro Detroit’s office vacancy rate fell to 24.9% during the third quarter of 2013, a level not seen since the fourth quarter of 2009, according to the latest Newmark Grubb Knight Frank (NGKF) market report. Slightly more than 354,000 square feet was absorbed during the quarter, pushing year-to-date total positive absorption to approximately 1.1 million square feet. The downward vacancy trend in both the CBD and suburbs is a clear indication that the office market is reversing the slide that began in early 2007.
“Although vacancy matches 2009 levels, the office market today looks significantly different than it did pre-recession due to robust activity in the CBD over the past several quarters,” said Fred Liesveld, executive vice president, managing director. “In 2007, the Detroit CBD had a vacancy rate of 33% while today it stands at 26.5%. And now we are starting to see demand pick up in the suburban office market, which is great news for southeastern Michigan and underscores the overall improvement in the region.”
During the last three years, the CBD has posted more than 1.2 million square feet of positive absorption as companies such as Blue Cross Blue Shield, DTE Energy, Quicken Loans, Title Source, Chrysler, PricewaterhouseCoopers, Metro-West Appraisal Company and Agency 720 leased space downtown. Since then, Detroit’s CBD vacancy rate has dropped eight percentage points and the next several years look just as positive.
“The CBD - which hasn’t seen development activity since One Kennedy Square in 2006 - is expanding,” said Mr. Liesveld, pointing to by Meridian Health Plan’s planned construction of a $111-million, 16-story office building at Campus Martius, which is expected to bring 1,200 employees into the new facility in 2017.
“What is most encouraging for Detroit is that healthy activity now extends beyond the CBD,” said Dan Canvasser, senior managing director. “The suburban market experienced significant vacancy increases as a result of the recession as well as the migration of some companies to the CBD. However, those trends are reversing, particularly in Troy, Southfield and Livonia.
Historically Metro Detroit’s best office submarket because of its central location, Southfield ended September with vacancy at 29.7%. Over the past six quarters, Southfield has seen large companies such as Faurecia Interior Systems, ITT Technical Institute and The Bartech Group lease space, creating stability in the submarket.
It is a similar story in Troy, where, year-to-date, the submarket has posted just over 225,000 square feet of positive absorption as companies such as Shore Mortgage, Magna, iDashboards, Flagstar Bank and Plex Systems Inc. have taken large blocks of space.
Mr. Canvasser added, “We continue to see solid market improvements in large-block lease activity in Troy and expect the vacancy rate to fall further in the coming quarter as Residential Home Health is expected to occupy 41,000 square feet on Corporate Drive.”
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