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Farmington Hills Leads Metro Submarkets with Strong Quarter, Detroit CBD Remains Active

Detroit, MI (10/09/2019)

1:00 PM

Newmark Knight Frank (NKF) released its third quarter 2019 office trends data for the Detroit region this week. According to the reports, Metro Detroit's office market vacancy rate fell 30 basis points to 15.0 percent during the third quarter of 2019, as nearly 92,000 square feet was absorbed. The Farmington Hills submarket accounted for the greatest share of absorption after Trinity Health took occupancy of a large block of office space. In the Detroit Central Business District, the vacancy rate spiked as property owners are bringing more renovated space onto the market to capture the growing office user base. Meanwhile, the downsizing educational market continues to create new vacancies around Metro Detroit. During the previous quarter, South University and the Art Institute of Michigan in Novi created nearly 100,000 square feet of new vacancies. During the third quarter, Northwestern Technological Institute and University of Phoenix added a combined 82,000 square feet of vacant space in Southfield.

Detroit
The Detroit CBD office market vacancy rate jumped 30 basis points to 12.7 percent during the third quarter, as negative absorption totaled just over 41,000 square feet. The vacancy rate spiked as the 85,000-square-foot Campau on Jefferson located in the Rivertown - Warehouse District hit the market. The core CBD office market remained healthy during the quarter. Notable deals during the quarter include Neighborhood Defender Services, Inc.'s 17,000-square-foot lease in the Guardian Building and Burns & McDonnell LLC's expansion to 17,000 square feet in the Francis Palms Building. Expansions are part of a trend in the CBD, as more companies have expanded their footprints in the city. Recently, companies such as IBM, Microsoft, LinkedIn, Universal McCann, WeWork and Waymo have expanded, while Google is planning to add onto its already existing space in the coming quarters. Meanwhile, renovations are nearly complete at The Assembly, a former warehouse that is being transformed into a five-story, multi-use development. Located in the Corktown District, the Bedrock-owned building will feature just over 79,000 square feet of office space. Its first office tenant, Coyote Logistics LLC, will occupy 50,000 square feet at the beginning of the fourth quarter of 2019. In terms of other new construction activity, Little Caesars has nearly completed construction of its $150.0 million, nine-story, 234,000-square-foot world headquarters at the corner of Woodward Avenue and Columbia Street. Chemical Bank is building a 20-story, 250,000-square-foot high-rise at Woodward Avenue and Elizabeth Street. Additionally, the law firm Warner, Norcross, & Judd pre-leased 30,000 square feet on an Olympia Development Co., LLC development at 2715 Woodward Avenue, located in The District Detroit.

"Despite downsizing in certain segments of the service sector, Metro Detroit's office market on the whole is holding steady," said Fred Liesveld, managing director of NKF's Detroit office. "The suburban markets offer a lot of options for both large and smaller office users. In the CBD, we are seeing more building owners renovating buildings to try to capitalize on the growth in demand in the city."

Farmington Hills

There were major developments in the Farmington Hills market, where Trinity Health took occupancy of an entire building, and a new building is set to begin construction. The Farmington Hills office vacancy rate fell 100 basis points to 7.5 percent during the third quarter, as more than 200,000 square feet was absorbed. The bulk of absorption came as Trinity Health consolidated from 18 locations across Michigan into 180,000 square feet at 34375 Twelve Mile Road. Other notable deals during the quarter include Symphony Performance Health, Inc.'s 9,500-square-foot lease in the Orchards Corporate Center and Sumika Polymers North America, LLC's 6,500-square-foot lease at Farmington Hills Officenter I. Meanwhile, Olympia Development is set to begin construction on a new, 200,000-square-foot Class A headquarters for Mercedes-Benz Financial Services USA. The new facility, located on the corner of Twelve Mile Road and Drake Road, is expected to be completed by 2021.

Southfield
The Southfield office market vacancy rate climbed 24 basis points to 21.6 percent during the third quarter, as new vacancies totaling just over 64,000 square feet were added to the submarket. The bulk of new vacancies came from two major educational companies. Northwestern Technological Institute vacated its 44,000-square-foot facility at 24567 Northwestern Highway and leased 13,000 square feet in the Northwestern Corporate Center. Meanwhile, University of Phoenix vacated 36,000 square feet of office space at the Evergreen Atrium Office Building, located at 26261 Evergreen Road. As these new blocks of space hit the market, the Class B and Class C vacancy rates increased, yet the Class A market saw positive absorption. In the Southfield Town Center, Blue Care Network of Michigan moved into 48,000 square feet, and SpotOn took 12,000 square feet in 4000 Town Center. United Health took 13,000 square feet in the 3000 Tower, and Edge Logistics leased 11,000 square feet in the 1000 Tower. Southfield's Class A vacancy rate fell 80 basis points to 18.3 percent during the quarter with net absorption just over 24,000 square feet. The Class B market vacancy rate increased 80 basis points to 23.7 percent with just over 51,000 square feet in new vacancies. The Class C market vacancy rate jumped 100 basis points to 23.9 percent with just over 37,000 square feet of negative absorption.

Troy
Troy's office market vacancy rate held steady at 17.0 percent during third-quarter 2019. Notable deals during the quarter include Fishman Stewart PLLC's 11,000-square-foot lease at 800 Tower and co-working provider Next7's 21,000-square-foot deal at 888 West Big Beaver Road. New leases were offset by various new vacancies around the submarket in buildings such as Kirts Office Park, Long Lake Crossing Campus and Columbia Center I. Overall, the trend in the Troy office submarket for the past two years has been positive. The submarket has posted eight consecutive quarters of positive absorption, totaling just over 620,000 square feet and resulting in a vacancy rate drop of 3.4 percentage points. Troy's Class A market vacancy fell 40 basis points to 7.4 percent during the third quarter after absorbing just over 14,000 square feet. The Class B market vacancy rate has remained at roughly the same 20.6 percent level throughout 2019. By contrast, the Class B market absorbed more than 345,000 square feet in 2018.

Birmingham
Birmingham's overall office market vacancy rate fell 30 basis points to 10.3 percent during the third quarter, as just over 3,000 square feet was absorbed. In Birmingham's CBD corridor, the vacancy rate fell 10 basis points to 12.4 percent; outside the CBD, the vacancy rate fell 50 basis points to 0.9 percent. Law firm Varnum, Riddering, Schmidt & Howlett, LLP moved into 8,000 square feet at 260 Brown Street, accounting for a large share of overall absorption in Birmingham. Year to date, Birmingham has absorbed just over 23,000 square feet. Notable market activity during the year included Universal McCann subleasing 21,000 square feet formerly occupied by Google, Inc.; Farm Bureau Insurance and various other firms taking space at 280 North Old Woodward Avenue; and Lion Resources Inc. leasing 15,000 square feet at 325 North Old Woodward Avenue.

Novi
The Novi office vacancy rate increased 60 basis points to 13.9 percent during the third quarter, as new vacancies totaling just over 9,000 square feet were added to the market. The bulk of new vacancies came from Summit Point and Orchard Hill Place. Offsetting some of the new vacancies were new leases at Crystal Glen Office Centre that included KLDiscovery Ontrack, LLC's 11,000-square-foot deal as well as smaller leases by Pace Industries, LLC and Michigan Venture Capital Association. 2019 has seen record levels of new vacancies for the Novi submarket. Year to date, negative absorption has totaled nearly 120,000 square feet. The bulk of those new vacancies came from South University and the Art Institute of Michigan, as the two educational firms moved out of nearly 100,000 combined square feet at 41555 West Twelve Mile Road and Haggerty Corporate Office Centre.

Livonia
The Livonia office market vacancy rate fell 50 basis points to 12.8 percent during the third quarter, as just over 14,000 square feet was absorbed. Flint Group's 16,000-square-foot lease in Laurel Office Park was the submarket's largest deal. Cambridge Center West also saw vacancies fall, as the office building leased roughly 10,000 square feet to various smaller tenants. New vacancies at Victor V and 17370-17390 North Laurel Park Drive offset a portion of the submarket's overall absorption levels.

Ann Arbor
Ann Arbor's overall vacancy rate fell 20 basis points to 3.0 percent during the third quarter, as nearly 13,000 square feet was absorbed. In the Ann Arbor CBD corridor, the vacancy rate fell 40 basis points to 3.6 percent. In the Northeast corridor, the vacancy rate held steady at 2.4 percent during the third quarter. KLA Corporation began construction of a 230,000-square-foot R&D facility at the Ann Arbor Technology Park. The new facility is slated for completion in 2021, at around the same time that Google Inc. is expected to greatly expand its presence in Northeast Ann Arbor. In the Briarwood corridor, the vacancy rate fell 50 basis points to 3.0 percent during the quarter, as just over 10,000 square feet was absorbed.

About Newmark Knight Frank
Newmark Knight Frank ("NKF"), operated by Newmark Group, Inc. ("Newmark Group") (NASDAQ: NMRK), is one of the world's leading and most trusted commercial real estate advisory firms, offering a complete suite of services and products for both owners and occupiers. Together with London-based partner Knight Frank and independently-owned offices, NKF's 16,000 professionals operate from approximately 430 offices on six continents. NKF's investor/owner services and products include investment sales, agency leasing, property management, valuation and advisory, diligence, underwriting, government-sponsored enterprise lending, loan servicing, debt and structured finance and loan sales. Occupier services and products include tenant representation, real estate management technology systems, workplace and occupancy strategy, global corporate services consulting, project management, lease administration and facilities management. For further information, visit www.ngkf.com. Newmark Group is a publicly traded subsidiary of BGC Partners, Inc. ("BGC") (NASDAQ: BGCP), a leading global brokerage company servicing the financial and real estate markets.

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