Newmark released its third quarter 2018 office trends data for the Detroit region this week. According to the reports, while absorption levels in the Detroit Central Business District have leveled off over the past few quarters, new future developments point to renewed strength in the city’s office market.
Metro Detroit’s office vacancy rate fell 30 basis points to 15.4 percent during the third quarter of 2018, as just over 195,000 square feet was absorbed. There are signs the office market may be slowing down. With the exception of Auburn Hills, leasing activity declined in the suburbs, where most submarkets posted only nominal vacancy rate changes and sublease space is on the rise. Available sublease space totaled nearly 1.1 million square feet during the third quarter, which is nearly double the amount that was available at the same time last year. While absorption levels in the Detroit Central Business District have leveled off over the past few quarters, new future developments point to renewed strength in the city’s office market.
“The slowdown we’ve been seeing in the suburban market is predictable given the general uncertainty in trade policies. I expect the whole Metro Detroit office market to respond positively as trade agreements are signed which will add clarity to the market,” said Fred Liesveld, managing director of Newmark’s Detroit office.
The Detroit CBD is set to welcome another company establishing a major presence Downtown. Chemical Bank announced plans to build a 20-story high-rise at Woodward Avenue and Elizabeth Street. The company plans to begin construction on its 250,000-square-foot building in mid-2019 and move 500 employees to its new location within the next two years. Meanwhile, Universal McCann announced plans to relocate 40 employees to 1001 Woodward Avenue and eventually expand by 150 employees. This follows two other companies looking to create a greater presence in the CBD: LinkedIn’s planned expansion in the Sanders Building on Woodward Avenue for the company’s 40 employees, and RSM US LLP’s expansion by 120 employees in the Chrysler House on Griswold Street over the next three years. On the new development front, Little Caesars is expected to complete its $150.0 million, nine-story, 234,000-square-foot world headquarters at the corner of Woodward Avenue and Columbia Street in early 2019. In addition, construction on what will be Detroit’s tallest skyscraper is underway at the former Hudson’s Department Store site. The nearly $1.0 billion construction project, which is being developed by Bedrock, will feature residential units and retail space along with an estimated 263,000 square feet of office space. Meanwhile, Ford continues to hammer out plans to renovate the iconic Michigan Central Station the company purchased during the second quarter. In addition to renovating and reusing the 500,000-square-foot, 18-story building, Ford is planning to redevelop the area into a 1.2 million-square-foot campus.
Southfield’s office vacancy held steady at 21.2 percent during the third quarter, although the submarket posted nearly 9,000 square feet in positive absorption. A few notable deals include Automotive Industry Action Group’s 33,000-square-foot lease at 4400 Town Center, Hospice of Michigan Inc.’s 21,000-square-foot lease and Globe Midwest Adjusters International’s 14,000-square-foot lease in 400 Galleria. New vacancies at One Northwestern Plaza, Town Center and Riverside Center partially offset overall absorption. Southfield’s office market will get a major boost during the fourth quarter, as Credit Acceptance moves into the 297,000-square-foot Raleigh Officentre. The move will likely push Southfield’s Class B market vacancy rate down to 21.0 percent from its current rate of 25.9 percent. Southfield’s Class A vacancy rate increased 40 basis points to 17.6 percent during the third quarter. The bulk of the new Class A vacancies came from the Town Center Complex.
Troy’s office market vacancy rate held steady at 18.5 percent during the third quarter. The submarket saw a few notable leases, including Ulliance Inc.’s 15,000-square-foot lease at 900 Tower and Integra Partners LLC’s 13,000-square-foot lease in Troy Place. Troy Officentre and Northfield Plaza II also saw building occupancy levels rise, as several small tenants took space. Leased space was nearly offset by large vacancies at the former Huntington Bank building and GP Strategies Corporation’s former space on Big Beaver Road. Large block sublease space is growing in the Troy submarket. Currently, there is just over 264,000 square feet of sublease space available, compared with just over 73,000 square feet during the same period last year. The bulk of that space resides in three buildings: 755 West Big Beaver Road, which has 78,000 square feet; 750 Stephenson Highway, which has 70,000 square feet; and 2600 West Big Beaver Road, which has 37,000 square feet of sublease space. These significant blocks of space provide additional competitive options for potential users in the market that would likely exert downward pressure on overall asking rates in Troy. Meanwhile, the submarket’s Class A vacancy rate fell by 60 basis points to 9.2 percent during the third quarter. The rate could jump to 13.0 percent, however, as more of the 147,000 square feet of sublease space becomes vacant. The Class B vacancy rate edged up 10 basis points to 22.2 percent during the quarter. The Class B market’s 114,000 square feet of sublease space will likely push vacancies up a full percentage point in the coming quarters.
The Farmington Hills office vacancy rate fell 80 basis points to 11.1 percent during the third quarter, as just over 51,000 square feet was absorbed. The bulk of absorption came from a 97,000-square-foot lease at 27777 Inkster Road. New vacancies at Freeway Office Plaza on Ten Mile Road offset a portion of the submarket’s overall absorbed space. Year-to-date, Farmington Hills’ vacancy rate has declined 130 basis points, as Flextronics America and Wells Fargo Clearing Services, LLC took large blocks of space during the first half of the year. The submarket’s Class A market has been quiet, with its vacancy rate holding at 12.6 percent through the first three quarters of the year. The bulk of the year-to-date leasing activity has been in Class B buildings, which has pushed the vacancy rate down 220 basis points to 9.0 percent over the past three quarters.
The Bloomfield Hills office vacancy rate fell 50 basis points to 7.0 percent during the third quarter, as just over 14,000 square feet was absorbed. Latitude Subrogation Services’ 8,000-square-foot lease at 6785 Telegraph Road was one of the larger deals of the quarter. Meanwhile, SGF North America, Inc. took space at 6001 North Adams Road and First Steps leased space at 43700 Woodward Avenue. Bloomfield Hills’ Class A vacancy held steady at 7.5 percent during the quarter. Most of the submarket’s leasing activity occurred in Class B properties, leading to a vacancy decline of 20 basis points to 7.2 percent during the quarter.
Auburn Hills’ office vacancy rate fell 3.6 percentage points to 13.3 percent during the third quarter, as just over 103,000 square feet was absorbed. General Motors’s 80,000-square-foot lease at 3000 University Drive and Oakland Technology Group’s 26,000-square-foot lease at 2601 Cambridge Court accounted for the bulk of the submarket’s overall absorption. These significant leases follow DXC Technology, a spinoff of Hewlett Packard Enterprise, leasing 151,000 square feet at 3000 University Drive during the fourth quarter of 2017. These large user requirements have cut the submarket’s vacancy rate in half in under a year.
Novi’s office market vacancy rate fell 10 basis points to 7.0 percent during the third quarter on overall slow leasing activity. One exception was KPIT Technologies’ plans to add 171 jobs to its 280 employees already located at 28001 Cabot Drive.
Newmark (“Newmark”), operated by Newmark Group, Inc. (“Newmark Group”) (NASDAQ: NMRK), is one of the world’s leading and most trusted commercial real estate advisory firms, offering a complete suite of services and products for both owners and occupiers. Together with London-based partner Knight Frank and independently-owned offices, Newmark’s 16,000 professionals operate from approximately 430 offices on six continents. Newmark’s investor/owner services and products include investment sales, agency leasing, property management, valuation and advisory, diligence, underwriting, government-sponsored enterprise lending, loan servicing, debt and structured finance and loan sales. Occupier services and products include tenant representation, real estate management technology systems, workplace and occupancy strategy, global corporate services consulting, project management, lease administration and facilities management. For further information, visit www.ngkf.com. Newmark Group is a publicly traded subsidiary of BGC Partners, Inc. (“BGC”) (NASDAQ: BGCP), a leading global brokerage company servicing the financial and real estate markets.
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