DETROIT—The vacancy rate for the Metro Detroit office market fell 70 bps to 16.5% during the first quarter of 2017, as just over 697,000 square feet was absorbed, according to a new report from Newmark Grubb Knight Frank. This marks the 19th consecutive quarter of positive absorption for the office market, totaling 7.8 million square feet.

But the CBD has been the standout performer, accounting for 30% of overall absorption. During the first quarter, the CBD's vacancy rate sank 110 bps to a historically low 11.8%, and that has some developers eager to launch significant new construction, once an unthinkable option. 

“Just five years ago, the vacancy rate was 27%,” John DeGroot, Farmington Hills, MI-based research manager for NGKF, tells GlobeSt.com. And the strong leasing activity “shows no sign of slowing down. We are seeing on average more than 100,000 square feet of absorption every quarter.”

The CBD recently attracted several firms on the cutting edge of technology and modern office use. Microsoft, which does a lot of work with the Big Three automakers, announced it is going to relocate from suburban Southfield to 42,000 square feet in the CBD's One Campus Martius building. And WeWork LLC, one of the nation's leading co-working providers, just moved into 40,000 square feet at both 1449 Woodward Ave. and 1001 Woodward Ave.

“There is already a scarcity of office space,” says DeGroot, and the moves by Microsoft and WeWork will send the class A vacancy rate, currently at around 8%, even lower.  

For several years, developers have satisfied the robust demand by converting and renovating older buildings into modern office space, and that work continues. Adient, for instance, has begun renovating the 164,000-square-foot Marquette Building, built in 1899. The company will move 500 employees into the building in the near future. Other iconic buildings are coming back to life. In the New Center area, the 290,000-square-foot Albert Kahn Building and 634,000-square-foot Max Fisher buildings, built in the 1930s, are getting a $100 million renovation.

But those opportunities are getting rare. “There is probably a handful of buildings that could still be renovated,” says DeGroot.

That has led Dan Gilbert's Bedrock Real Estate, the prime mover behind the renovation of millions of square feet of downtown offices, to seriously consider developing a new, 600,000-square-foot, 20-story office tower near Campus Martius. The complex will have a total of about 1.2 million square feet, including retail and new residences for the tight multifamily market. Company officials have said they want to start construction in early 2018.

“It's still in the planning stages,” says DeGroot, “but given the market and the level of demand we're seeing, it makes a lot of economic sense.”

DETROIT—The vacancy rate for the Metro Detroit office market fell 70 bps to 16.5% during the first quarter of 2017, as just over 697,000 square feet was absorbed, according to a new report from Newmark Grubb Knight Frank. This marks the 19th consecutive quarter of positive absorption for the office market, totaling 7.8 million square feet.

But the CBD has been the standout performer, accounting for 30% of overall absorption. During the first quarter, the CBD's vacancy rate sank 110 bps to a historically low 11.8%, and that has some developers eager to launch significant new construction, once an unthinkable option. 

“Just five years ago, the vacancy rate was 27%,” John DeGroot, Farmington Hills, MI-based research manager for NGKF, tells GlobeSt.com. And the strong leasing activity “shows no sign of slowing down. We are seeing on average more than 100,000 square feet of absorption every quarter.”

The CBD recently attracted several firms on the cutting edge of technology and modern office use. Microsoft, which does a lot of work with the Big Three automakers, announced it is going to relocate from suburban Southfield to 42,000 square feet in the CBD's One Campus Martius building. And WeWork LLC, one of the nation's leading co-working providers, just moved into 40,000 square feet at both 1449 Woodward Ave. and 1001 Woodward Ave.

“There is already a scarcity of office space,” says DeGroot, and the moves by Microsoft and WeWork will send the class A vacancy rate, currently at around 8%, even lower.  

For several years, developers have satisfied the robust demand by converting and renovating older buildings into modern office space, and that work continues. Adient, for instance, has begun renovating the 164,000-square-foot Marquette Building, built in 1899. The company will move 500 employees into the building in the near future. Other iconic buildings are coming back to life. In the New Center area, the 290,000-square-foot Albert Kahn Building and 634,000-square-foot Max Fisher buildings, built in the 1930s, are getting a $100 million renovation.

But those opportunities are getting rare. “There is probably a handful of buildings that could still be renovated,” says DeGroot.

That has led Dan Gilbert's Bedrock Real Estate, the prime mover behind the renovation of millions of square feet of downtown offices, to seriously consider developing a new, 600,000-square-foot, 20-story office tower near Campus Martius. The complex will have a total of about 1.2 million square feet, including retail and new residences for the tight multifamily market. Company officials have said they want to start construction in early 2018.

“It's still in the planning stages,” says DeGroot, “but given the market and the level of demand we're seeing, it makes a lot of economic sense.”