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Detroit Office Market is Making History

DETROIT—The vacancy rates for both the suburbs and the CBD have been falling for years, and are now at historic lows.

By Brian J. Rogal | brianjrogal | | Updated on July 14, 2016

 

onedetroitcenter2 (2) Just five years ago, One Detroit Center was 60% vacant, but today the Philip Johnson-designed structure is fully leased.
DETROIT—The Detroit region’s office market seems set to continue on the upward trajectory it has now been on for several years. This is especially true for the once beleaguered downtown, where the vacancy rate among class A properties has fallen from 25.1% to 9.1% in just two years, according to report just issued by Newmark Grubb Knight Frank . The metro region’s overall vacancy rate fell 60 bps to 18.3% during the second quarter of 2016, as just over 474,000 square feet was absorbed, the firm found. The midyear absorption level of 919,000 square feet was down slightly compared with 2015 midyear absorption level of just over one million square feet. “It’s been six years since downtown became a hotspot, and it continues to be a hotspot,” John DeGroot , vice president of research, tells GlobeSt.com. “We’re seeing rates that no one has seen for years, and they keep dropping.”   The Detroit CBD’s vacancy rate fell 80 bps to 14.7% during the second quarter, as roughly 110,000 square feet was absorbed. In just two years, the market absorbed 810,000 square feet of class A space. As reported in GlobeSt.com, local business owners such as Quicken Loans’ Dan Gilbert have taken over dozens of underutilized or vacant downtown structures and filled the spaces with thousands of employees, many of whom worked in the suburbs not so long ago. “There are still a lot of buildings that could be refurbished,” DeGroot says, and he expects this suburban to CBD trend continue for some time. In the second quarter, for example, Ally Financial moved from suburban Southfield to One Detroit Center in the CVBD. “On a sunny weekday, you will see thousands and thousands of people walking around the downtown; there is energy and momentum, and more companies are going to want to take part in it.”    New construction has also become a possibility in the downtown. Little Caesars , for example, will soon begin construction of its 234,000-square-foot owner-occupied headquarters located on Woodward Ave. near the Fox Theatre. “But it’s not just the CBD,” DeGroot adds. Demand for office space has intensified in the three top suburban markets of Troy, Farmington Hills and Southfield. Troy’s office market vacancy rate fell 120 bps to 22.5% during the second quarter, as just over 149,000 square feet was absorbed. Even in Southfield, which took a hit from the Ally Financial relocation, the vacancy rate fell 10 bps to 22.3%, as roughly 13,000 square feet was absorbed.      Farmington Hills has been particularly impressive. During the second quarter, the submarket’s vacancy rate fell 170 bps to just 14.3%, as roughly 111,000 square feet was absorbed. The suburbs’ vacancy rate is now at a 14-year low, DeGroot says, and rents recently hit a six-year high. “We’re going on four straight years of positive absorption.”

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