Newmark Grubb Knight Frank (NGKF) released its third quarter 2016 office trends data for the Detroit region this week. According to the reports, the demand grows for office space across Metro Detroit and the overall market vacancy rate falls 60 basis points.
Metro Detroit’s overall office market vacancy rate fell 60 basis points to 17.8 percent during the third quarter of 2016. Class A space continued to see the greatest demand, as year-to-date absorption exceeded 1.1 million square feet, compared with 403,000 square feet at this time in 2015. Over the past two years, the Class A vacancy rate has dropped from 18.5 percent to 12.3 percent, as leasing activity has been particularly strong in Detroit’s Central Business District (CBD), Southfield, Troy and Farmington Hills submarkets. The Class B market has seen growth in demand as well, with a vacancy rate that has fallen 210 basis points over the past two years to 22 percent. The Class B market is somewhat hampered by large, vacant, former single-tenant, owner-occupied buildings such as the Federal Mogul Corporation’s 357,000-square-foot building; the former Blue Cross Blue Shield buildings totaling 430,000 square feet in Southfield; and Lear Corporation’s 88,000-square-foot building in Dearborn. However, the market is now producing more large-block tenants to reoccupy some of those buildings.
“It’s evident by the sustained demand for office space across Metro Detroit, particularly in the Class A market, that Metro Detroit’s service sector remains on solid footing,” said Fred Liesveld, managing director of NGKF’s Detroit office.
Troy’s office market continues to see significant leasing activity. The vacancy rate fell 140 basis points to 21.3 percent during third-quarter 2016, as just over 180,000 square feet was absorbed. Accounting for a significant portion of overall absorption was Ascension Health’s move into 53,000 square feet at 800 Tower Drive and SRG Global Inc.’s move into 50,000 square feet at 800 Stephenson Highway. Year-to-date, the Troy office market has absorbed 367,000 square feet compared with 83,000 square feet for the first three quarters of 2015. The bulk of absorption through the three quarters of 2016 is attributed to several companies, including Midland Credit Management Inc., Dinsmore & Shohl, LLP, Tyler Technologies, Allegis Global Solutions and Carlex Glass America, LLC. Both the Class A and Class B markets are active. Despite Cambridge Consulting Group’s relocation from the Columbia Center, the Class A market has seen 201,000 square feet of absorption year-to-date, pushing the Class’s vacancy rate down 6.4 percentage points to 12.8 percent during that time frame. The average Class A asking rate is climbing; year-to-date, the rate has climbed from $24.13 per square foot to $24.31 per square foot. Troy’s Class B office market vacancy rate has dropped 170 basis points to 24.5 percent year-to-date, as 165,000 square feet has been absorbed.
Southfield’s office market vacancy rate fell 50 basis points to 21.9 percent during the third-quarter of 2016, as 61,000 square feet was absorbed. Demand for Class A space in the submarket remains healthy, as 57,000 square feet was absorbed during the quarter, and the vacancy rate fell 140 basis points to 20.1 percent. The Travelers Tower I building posted absorption as Accretive Health, Inc. expanded by 13,000 square feet, and Willis of Michigan, Inc. leased nearly 8,000 square feet. Other Class A buildings such as One Towne Square saw absorption, as Technosoft Corporation moved into 25,000 square feet, while the Southfield Town Center saw various leases over 24,000 square feet. Over the past two years, the Class A vacancy rate has dropped 290 basis points, while the average asking rate has grown from $20.17 per square foot to $21.52 per square foot. The Class B market vacancy rate edged up 40 basis points to 25 percent during third-quarter 2016. Absorption in the Class B market has tapered off in 2016; year-to-date absorption totals negative 45,000 square feet compared with positive 325,000 square feet during the same time frame in 2015. However, absorption is likely to turn positive again in the coming quarters, as Stefanini, Inc. is scheduled to move into 47,000 square feet in the Blue Cross Blue Shield former Tower 100 building during the first quarter of 2017.
Farmington Hills’ office market vacancy rate fell 160 basis points to 12.7 percent during the third-quarter of 2016, as just over 99,000 square feet was absorbed. Two notable deals accounted for the bulk of absorption: Merrill Lynch’s 60,000-square-foot lease at 39001 Twelve Mile Road and Quinn Law Group’s 16,000-square-foot lease at 21500 Haggerty Road. Farmington Hills is having one of its most successful years in recent history, as the submarket has posted over 377,000 square feet of absorption year-to-date. Throughout the year, companies such as ZF TRW, AGC Flat Glass North America and Trinity Health have been taking large blocks of space. Strong demand for space in Farmington Hills has pushed the submarket’s vacancy rate to a level not seen since 2002. Both the Class A and B market segments have healthy vacancy rates of 11.2 percent and 14.1 percent respectively.
The Detroit CBD’s office vacancy rate fell 60 basis points to 14.2 percent during the third-quarter of 2016, as just over 77,000 square feet was absorbed. One notable deal was International Bancard Corp’s relocation from the northern suburb of Clawson to Bedrock Management Services LLC’s 1505 Woodward Avenue building. Bancard Corp. will have naming rights for the 54,000-square-foot building. In another large deal, Healthy Living Medical Supply leased 7,000 square feet at 2115 Woodward Avenue, near the Fox Theatre. Also near the Fox Theatre, Little Caesars began construction of its 234,000-square-foot, owner-occupied headquarters located on Woodward Avenue. The building will be known as the Little Caesars Global Resource Center and is expected to complete in late 2017.
Livonia’s office market vacancy fell 110 basis points to 16 percent during the third-quarter of 2016, as 34,000 square feet was absorbed. The bulk of absorption came from Trinity Health’s move into 42,000 square feet at 20000 Victor Parkway. Positive absorption was partially offset by a few vacancies at Seven Mile Crossing. Year-to-date, Livonia’s office market is in negative territory, as the submarket has not seen an active leasing market since 2015. Year-to-date absorption is at negative 30,000 square feet. One significant development coming during the first half of 2017 will be the completion of Masco’s 91,000-square-foot office headquarters between Six Mile and Seven Mile roads. The company is relocating from Taylor.
Ann Arbor’s overall vacancy rate held steady at 9.4 percent during the third-quarter of 2016. A few vacancies were created, including: 16,000 square feet in the First National Building, located in the CBD; and 10,000 square feet in the Concord Center, which is in the Briarwood Corridor. These vacancies were mostly offset by Duo Security Inc.’s 13,000-square-foot expansion at the Allmendinger Building and various smaller. Despite additional space coming on the market, the CBD Corridor remains tight as vacancies are at 2.1 percent. Briarwood Corridor vacancy rate fell slightly during the third quarter to 17.7 percent. Vacancy rate is mostly inflated by Truven Health Analytics, which vacated 200,000 square feet when the company relocated. The Northeast Corridor’s vacancy rate held steady at 5.9 percent during the quarter.
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