Newmark released its third quarter 2017 office trends data for the Detroit region this week. According to the reports, with demand for office space at levels never seen in the Detroit CBD, investments in the CBD-including new sporting venues, retail districts and residential developments-have grown into the billions of dollars.
The Metro Detroit Office market vacancy rate fell 20 basis points to 17.0% during the third quarter of 2017, as just over 180,000 square feet was absorbed. Year-to-date absorption in 2017 totaled 386,000 square feet, compared with 1.2 million square feet during the same period in 2016. While absorption levels have slowed in many of the suburban markets, the momentum is still strong in the Detroit Central Business District, as the submarket marks its 21st straight quarter of positive absorption. With demand for office space at levels never seen in the Detroit CBD, investments in the CBD-including new sporting venues, retail districts and residential developments-have grown into the billions of dollars. As money and energy pour into the city, developers are betting that investments made in new and renovated office buildings will continue to pay off in the future.
“Since 2012, we’ve seen a transformation of the Detroit CBD,” said Fred Liesveld, managing director of Newmark’s Detroit office. “It is great to see that investments and energy continue to pour into the downtown area going into 2018.”
The Detroit CBD vacancy rate decreased 20 basis points to 11.2% during the third quarter, as just over 32,000 square feet was absorbed. Year-to-date, the CBD has posted just over 237,000 square feet. Since 2012, the CBD has absorbed just over 2.4 million square feet. The level of demand has created a near scarcity of functional modern office space; the vacancy rate for Class A space alone is just 7.7%. The level of demand for office space is just one element of the overall transformation of the city of Detroit and the historic developments underway. Olympia Entertainment completed construction of the $862 million Little Caesars arena and district that will house the Detroit Red Wings and bring the Detroit Pistons back to the city from Auburn Hills. Little Caesars is also finishing its new, $150 million, nine-story, 234,000-square-foot world headquarters at the corner of Woodward Avenue and Columbia Street. According to the Downtown Detroit Partnership, the Greater Downtown Detroit area is expected to see a demand for 10,000 new residential units during the next five years. With the anticipation of demand for office, retail and residential, developers and investors are pouring in millions of dollars to not only renovate existing iconic buildings but also to build new skyscrapers. In the New Center area, the 290,000-square-foot Albert Kahn Building and 634,000-square-foot Max M. Fisher Building, built in the 1930s, are getting a $100 million renovation. The 300,000-square-foot former Detroit Free Press building is undergoing renovations that will turn the building into a mixture of office, retail and residential uses. Meanwhile, Bedrock is investing nearly $1 billion to redevelop the former Hudson Site into a mixture of office and residential that will become the city’s tallest skyscraper at 800 feet.
Tenants were active leasing space in the Troy office market; however, a large block vacancy pushed the submarket’s overall vacancy up 20 basis points to 20.3% during the third quarter. Net absorption totaled just over negative 25,000 square feet, despite an 115,000-square-foot vacancy at 100 East Big Beaver Road. Offsetting the large vacancy were various leases throughout the submarket from companies such as Guardian Industries, TKS Industrial, North American Interconnect, Accretive Solutions and Lux Interactive. Through the first three quarters of 2017, a net 67,000 square feet of positive absorption have been recorded. The figure is down considerably from the 345,000 square feet absorbed during the same period in 2017. The Class A market has seen the greatest level of demand in 2017, absorbing just over 104,000 square feet through the first three quarters of the year, causing vacancy to fall from 11.5% to 8.5%. On the other hand, Class B market vacancy climbed 100 basis points to 24.3%, as that market added just over 118,000 square feet of new vacancies during the same period. In 2018, Troy will see another major vacancy come on the market, as United Shore announced plans to relocate from its 267,000-square-foot, Class A headquarters at 1414 East Maple Road to 585 South Boulevard in Pontiac. The move is likely to put the submarket’s Class A vacancy at 20.0%.
The Southfield office market’s vacancy decreased 30 basis points to 23.3% during the third quarter, as just over 58,000 square feet was absorbed. A few notable deals during the quarter include: Ricoh USA, Inc.’s 16,000-square-foot lease in the Maccabees Center on Northwestern Highway; Texas Instruments Inc.’s 11,000-square-foot lease at 29777 Telegraph Road; and ASP Inc.’s 10,000-square-foot lease in the American Center on Franklin Road. Year-to-date, the submarket has posted just over 157,000 square feet of negative absorption and a vacancy increase of 80 basis points, as competition from the Detroit CBD market lured large tenants, such as Microsoft. The submarket’s inventory of Class A space has taken the brunt of new vacancies, adding just over 239,000 square feet of net vacant space to the market year-to-date. The Class B inventory has posted just over 52,000 square feet of positive absorption through the first three quarters of the year.
The Farmington Hills office market’s vacancy increased 10 basis points to 12.6% during the third quarter, as just over 10,000 square feet in net vacancies came on the market. The submarket saw various smaller leases from companies such as: Hyundai Dymos Michigan, LLC, at 27555 Executive Drive; Capital Billing Systems, Inc., at 33533 West Twelve Mile Road; and the Chaldean Chamber of Commerce, at 30095 Northwestern Highway. The Class A market’s vacancy jumped 40 basis points to 13.5% during the quarter, while the Class B market’s vacancy fell slightly by 20 basis points to 11.6%. The submarket’s year-to-date absorption total of 5,794 square feet is down considerably compared with 317,000 square feet during the same timeframe in 2016. Absent in 2017 are the large block leases the submarket saw in 2016 from companies such as ZF TRW, AGC Flat Glass North America, Renesas Electronics Corporation, Trinity Health and Bank of America, Inc.
The Livonia office vacancy decreased 110 basis points to 12.7% during the third quarter, with over 34,000 square feet absorbed. Various smaller leases made up the bulk of overall absorption. Year-to-date, the Livonia market has posted just over 75,000 square feet of positive absorption in 2017, compared with negative 28,000 square during the same time period in 2016. The bulk of the submarkets absorption in 2017 came from Masco’s move into its nearly-constructed 91,000-square-foot headquarters on College Parkway.
Novi’s office vacancy decreased 40 basis points to 8.7% during the third quarter. Positive absorption for the quarter was nearly 7,000 square feet. Year-to-date, the submarket has posted just over 115,000 square feet of positive absorption, compared with just 18,000 square feet during the same time period in 2016. The bulk of the submarket’s absorption in 2017 resulted from Yanfeng Automotive Interiors’ 93,000-square-foot lease at the former Twelve Oaks Professional Center at 41935 Twelve Mile Road during the first quarter.
Bloomfield Hills’s office vacancy decreased 60 basis points to 7.8% during the third quarter, as just over 17,000 square feet was absorbed. First American Title Insurance Company’s 9,000-square-foot lease at 300 East Long Lake Road was the submarket’s largest deal during the quarter. Various other companies signed leases under 5,000 square feet around the submarket, such as GFZ Medical Services, Helfman & Associates PC, Joni Lipson PLLC, Max Broock, Inc. and Miller Media, Inc. The Bloomfield Hills submarket has largely underperformed in 2017; year-to-date, the submarket has posted negative absorption of just under 11,000 square feet.
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