Newmark Knight Frank (NKF) released its second quarter 2018 office trends data for the Detroit region this week. According to the reports, Metro Detroit’s office vacancy rate fell 50 basis points to 15.6% during the second quarter of 2018, as just over 848,000 square feet was absorbed. The Detroit Central Business District continues its historic trend of growth, as Ford Motor Company announced major investments into the city that include the purchase of Michigan Central Station. In the suburbs, quarterly absorption was bolstered by United Shore’s move into its new, 638,000-square-foot headquarters at 585 South Boulevard in Pontiac.
“Ford Motor Company’s investment was a smart move for the car company as it allows the firm to capitalize on the area’s resurgence and growing high-tech talent pool,” said Fred Liesveld, managing director of NKF’s Detroit office.
After 24 consecutive quarters of growth that produced over 2.6 million square feet of positive absorption and thousands of new employees, the migration of firms into Detroit’s CBD shows no sign of letting up. The trend that started and grew as companies such as Rock Financial, Blue Cross Blue Shield, Little Caesars, Google, Inc., Meridian Health and Microsoft became a major presence in the CBD continues, as Ford Motor Company announced the purchase of the iconic Michigan Central Station. Built in 1913 as a railroad passenger hub, the 500,000-square-foot, 18-story structure sat mostly vacant for 30 years and became a metaphor for Detroit’s urban decay. Purchasing the Michigan Central Station allows Ford to brand itself in the Motor City and capitalize on the growing energy and skilled labor pool being drawn into the city. By 2022, Ford plans to renovate and redevelop the area into a 1.2 million-square-foot campus that will eventually be home to 2,500 employees. Ford’s development comes on the heels of other major developments underway in Detroit. Little Caesars is nearing completion of its $150.0 million, nine-story, 234,000-square-foot world headquarters at the corner of Woodward Avenue and Columbia Street. Construction on what will be Detroit’s tallest skyscraper is underway at the former Hudson’s Department Store site. The nearly $1.0 billion construction project, which is being developed by Bedrock, will feature residential units and retail space along with an estimated 263,000 square feet of office space. In the New Center area, the 290,000-square-foot Albert Kahn Building and 634,000-square-foot Max M. Fisher Building, built in the 1930s, are getting a $100.0 million renovation. The 300,000-square-foot former Detroit Free Press building is undergoing renovations that will turn the building into a mixture of office, retail and residential uses. Other companies expanding in the CBD include LinkedIn, which announced that it will open a larger office in the Sanders Building on Woodward Avenue for the company’s 40 employees. RSM US LLP is planning an expansion from 40 employees to 120 employees in the Chrysler House on Griswold Street over the next three years. In the New Center area, Tata Technologies is planning to relocate its headquarters from Novi to 6001 Cass Avenue in the New Center area. The company’s 150 employees are scheduled to complete the move in early 2019.
Southfield’s office market vacancy rate fell 10 basis points, as just over 20,000 square feet was absorbed during the second quarter. The Class A vacancy rate fell 20 basis points to 17.2% during the second quarter, as just over 16,000 square feet was absorbed. Year-to-date absorption totaled 130,000 square feet because of a strong first quarter that saw the absorption of 113,000 square feet. During the first quarter, office complexes saw new leases from companies such as Mortgage Center, LC, MSX International, Inc, Group Associates, Inc. and AmWins Access Insurance Services LLC totaling over 40,000 square feet. The Southfield Town Center complex also saw an increase in leasing activity, as companies such as the Society of Manufacturing Engineers (SME), Bejijn Bieneman PLC and SHI International signed new leases. Meanwhile, the Class B vacancy rate fell 100 basis points to 24.2% during the second quarter, as nearly 30,000 square feet was absorbed. The Bingham Office Park saw new leases from The Money Source Inc. and various other smaller office users. Year-to-date, Southfield’s Class B market has posted just over 62,000 square feet of positive absorption. The main contributor was ConcertoHealth Inc., which relocated from Detroit to 18,000 square feet at the Southfield Centre on Nine Mile.
Troy’s office market vacancy rate fell 80 basis points to 18.5% during the second quarter, as just over 110,000 square feet was absorbed. GP Strategies Corporation’s 54,000-square-foot lease at Troy Place on Big Beaver Road was one of the submarket’s largest deals. The complex signed various other deals during the second quarter, including an 8,000-square-foot lease by Dynamic BDC. Troy’s Class A market vacancy rate increased 100 basis points to 9.8% during the quarter, as 35,000 square feet of new vacancies came on the market. Meanwhile, the amount of Class A sublease space increased from 37,000 square feet to over 153,000 square feet. Both 750 Stephenson Highway and PNC Center on Big Beaver Road posted over 70,000 square feet of available sublease space. The jump in available sublease space was largely due to Beaumont Hospital’s relocation from Troy to First Center Office Plaza in Southfield. Despite the increase in sublease space, the Class A market has posted just over 45,000 square feet of positive absorption year-to-date. Much of the absorbed space came from the PNC Center during the first quarter, as Tata Consultancy Services and Ellis Porter PLC leased 30,000 square feet. The Class B vacancy rate fell 100 basis points to 22.3% during the second quarter, as just over 90,000 square feet was absorbed. The bulk of Class B absorption during the quarter was from small office users in Troy Place, Sheffield Office Park and the City Center Building. Year-to-date, the Class B market has absorbed just over 154,000 square feet. Coupled with a strong second quarter, the first quarter saw tenants such as Trion Solution and Konica Minolta Business Solutions sign large leases at City Center and the PentaCentre on Big Beaver Road.
The Farmington Hills office vacancy rate held at 11.9% during the second quarter, as new leases offset new vacancies. Smaller office requirements made up the bulk of leasing activity during the quarter, as companies such as Wells Fargo Bank took 5,400 square feet at Orchards Corporate Center II on Stansbury Boulevard, and XX took 7,600 square feet at the Metrobank Building on Grand River Avenue. Year-to-date, the Farmington Hills submarket has absorbed just over 28,000 square feet. The lion’s share of this absorption came from the Class A market and Flextronics America, LLC’s lease in the first quarter for 60,000 square feet in the Orchards Corporate Center. The Class A vacancy rate ended the second quarter at 12.6%, down from 13.3% at the beginning of the year. There was less activity in the Class B market, which has had a vacancy rate less activity as the vacancy rate has held steady at 11.2% over the past two quarters.
Livonia’s office market vacancy rate increased 70 basis points to 12.5% during the second quarter, as just over 17,000 square feet of net vacancy space came on the market. Eastern Michigan University’s move out of the Cambridge Center on Six Mile Road accounted for the bulk of negative absorption and added a 20,000-plus-square-foot block of space in the office building. Negative absorption was somewhat offset by various smaller office leases at Laurel Office Park I. Sluggish leasing activity in Livonia’s Class A office market resulted in very little absorption year-to-date, although the vacancy rate has remained at a healthy 3.3%. As a result of new vacancies during the second quarter, most of the 20,000 square feet the Class B market positively absorbed during the first quarter was returned to the market, leaving the Class B vacancy rate essentially unchanged at 11.2% for the first half of the year.
Pontiac’s office vacancy rate fell from 42.9% to 28.9% during the second quarter. The massive vacancy decline was the result of United Shore’s move into its new, 638,000-square-foot headquarters at 585 South Boulevard.
Ann Arbor’s overall office vacancy rate fell 40 basis points to 6.3% during the second quarter as just over 16,000 square feet was absorbed. The bulk of absorption came from the Briarwood corridor. One of the largest deals in the Briarwood corridor was Wacker Chemical Corporation 11,000-square-foot lease at 1101 Technology Drive. Year-to-date, the corridor has posted nearly 60,000 square feet of positive absorption. In Ann Arbor’s CBD corridor, vacancies increased slightly by 20 basis points to 4.3% during the second quarter. Year-to-date, vacancies are up by just over 15,000 square feet; the bulk of which came from the One North Main Building. In the Northeast corridor, the vacancy rate fell 10 basis points to 1.1% during the second quarter leaving the area at near full occupancy. Year-to-date, the Northeast corridor has recorded just over 20,000 square feet in positive absorption.
About Newmark Knight Frank
Newmark Knight Frank (“NKF”), operated by Newmark Group, Inc. (“Newmark”), is one of the world’s leading commercial real estate advisory firms. Newmark has over 4,600 employees in over 120 offices. Together with London-based partner Knight Frank and independently-owned offices, NKF’s 15,000 professionals operate from more than 400 offices in established and emerging property markets on six continents. With roots dating back to 1929, NKF’s strong foundation makes it one of the most trusted names in commercial real estate. We offer a complete suite of services and products for both owners and occupiers across the entire commercial real estate industry.
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