FARMINGTON HILLS, MI-The year 2000 marked a transition for both local office real estate markets and the overall economy, said Matthew Fenster, executive director of Paragon Corporate Realty Services of Farmington Hills, in his company's fourth-quarter office market update.

By the end of third quarter, both began cooling from the brisk pace of the last several years, he said.

Demand for leased space remained steady throughout most of the year, he said. Metro Detroit's suburban office markets recorded 1,359,159 sf of positive net absorption in 2000 and an average vacancy rate of 7.41% — down slightly from year end 1999's 7.5%. New construction added 1,276,318 sf of multi-tenant space to suburban Detroit's office inventory. At year end, 78% of it was occupied, Fenster said.

Nearly 980,000 sf of new suburban office space was under construction at year end, 53% which was pre-leased. That compares to 773,818 sf under construction at year end 1999, 69% preleased.

“The new suburban office projects under construction at year-end will leaseup gradually in the next 12 to 18 months,” Fenster said. “Additional new projects could create an oversupply of office space in Metro Detroit.”

The average asking rent for suburban Class B office property climbed $1.12 per sf in 2000, ending the year at $20.77. Suburban Class A rents held steady during 2000, ending the year at $24.91 per square foot — $0.40 cents higher than at year-end 1999.

“Demand for Class A office space in the suburbs and Detroit will soften from the last five years, but will still exist,” Fenster said. “Rental rates will likely remain near current levels, with landlords giving a little more in rental rates and tenant improvements than in the last two years. If large-scale corporate downsizing occurs and creates significant vacancies, asking rents could fall.”

.Few major properties were sold in 2000. Reported prices ranged between $110 and $135 psf, depending on location and whether it was a Class A or B development. “New speculative construction starts will taper off,” Fenster said. “Few office properties are expected to change hands in 2001. The isolated buildings that do sell will continue to command high prices.”

The City of Detroit's 6.4 million-sf class A market reported a 10.8% vacancy rate. Interest in the city continues, but at a slightly lower level than a year ago, Fenster said.

Instant Insights /

Paragon Office Outlook Shows Market Slowing, but Still Going

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