Marcus & Millichap says Detroit dropped eight places to No. 37 out of 42 markets in its 2005 rankings of activity in office real estate, based on a series of 12-month forward-looking supply and demand indicators. Still, the company does see some positive signs for office real estate in the Detroit region yet this year.
"Sales activity is expected to increase with properties comprised of less than 50,000 sf being the most sought after," Chaben says. "Out-of-state investors continue to target buildings located in suburban office cores, such as Bloomfield Hills, Farmington Hills, Auburn Hills and Troy."
The Marcus & Millichap report indicates the following for the Detroit office market in 2005:
* Job growth of 1.1%, or 22,000 positions, is expected in 2005. Payrolls in the professional and business services sector are expected to expand by 13,000 jobs, which will provide a much-needed boost to office demand.
* Construction activity is forecast to decline this year to 750,000 sf. Developers continue to be deterred by high vacancy and flat rental rates in the market, leading to a decrease of 150,000 sf this year.
* Strong gains in office-using employment are forecast to support a decline in vacancy, which is expected to end the year at 17.9%. The decrease in vacancy, however, will not be substantial enough to allow owners to begin raising asking rents.
* Asking rents are expected to remain stable at $19.80 per sf in 2005. Effective rents will increase 0.2 percent to $16.86 per sf, as concessions begin to dissipate by year end.
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