"With the increased vacancy rates, overall vacancy remained much lower than the early 1990s, when vacancy rates approached 20%," says Matthew Fenster, Paragon's executive director. "Having learned hard lessons, most developers avoided overbuilding, allowing for a softer landing for the local real estate markets."
The class A vacancy rate increased to 10.1% from 8.2% in the third quarter, he reports. Submarkets such as Southfield and Detroit had higher vacancies.
However, a few suburban submarkets saw their vacancy rates drop, including Birmingham/Bloomfield from 8% to 6.4%, and in Auburn Hills from 35.2% to 29.5%.
It could be worse, like in other national markets, Fenster reasons.
"Southeast Michigan's real estate market has proven relatively stable compared to other areas of the country. Some regions and cities saw a number of individual companies or industry segments vacating huge amounts of space -- hundreds of thousands of square feet at a time," he says.
Fenster notes leasing activity has rebounded in the Detroit area. Brokers reported more inquiries and showings during the latter part of 2001.
However, property owners, facing weak demand, have grown increasingly aggressive. Many tenants are being offered discounts, free rent periods and other amenities. Rental rates remained unchanged in the fourth quarter, Fenster says, at about $24.95 per sf for class A space.
"Many tenants with stable business plans took advantage of the depressed markets and signed longer term leases," he explains.
About 776,680 sf of new office space was under construction at the close of the fourth quarter, Fenster reports.
"Many developers shifted their focus to leasing existing vacancies and planning projects for the next upturn," he says. "Developers avoided overbuilding in most submarkets."
The Kojaian Co. of Farmington Hills, however, bucked this trend, Fenster says. The large office developer has continued building speculative properties. Current new developments by the company include the 180,000-sf Farmington Hills Corporate Center and the 275,000-sf Maple Corporate Center.
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