Renewed Strength in Metro Detroit’s Office Market
After several years of redeveloping older, underutilized buildings, new construction has begun.
DETROIT—This city’s CBD has come a log way in just a few years. The many underutilized buildings now hum with office workers, many of whom live downtown or in the surrounding neighborhoods, one of the tightest apartment submarkets in the US. And even though absorption levels in the CBD have leveled off over the past few quarters, new future developments point to renewed strength in the city’s office market, according to Newmark Knight Frank’s third quarter office trends data.
“There is still an incredible amount of demand from companies that want to have a presence downtown,” John DeGroot, NKF’s research manager, tells GlobeSt.com. “It does not seem to be slowing down.”
Chemical Bank, for example, has decided to build a 20-story high-rise at Woodward Ave. and Elizabeth St. The company plans to begin construction on its 250,000-square-foot building in mid-2019 and move 500 employees to its new location within the next two years. DeGroot says this move may have been necessary because the CBD did not have enough space for the Midland, MI-based bank.
Metro Detroit’s office vacancy rate fell 30 bps to 15.4% during the third quarter of 2018, as just over 195,000 square feet was absorbed, according to NKF. But DeGroot says the CBD is even tighter, with a vacancy rate hovering around 10%.
Leasing activity has declined in most of the suburbs, where most submarkets posted only nominal vacancy rate changes and sublease space is on the rise. “Eighty percent of the available sublease space is in the suburban market,” DeGroot says. And available sublease space totaled nearly 1.1 million square feet during the third quarter, or nearly double the amount that was available at the same time last year.
Chemical Bank is not the only major firm with big plans for the downtown. Little Caesars will complete its $150 million, nine-story, 234,000-square-foot world headquarters at the corner of Woodward Ave. and Columbia St. early next year. In addition, Dan Gilbert’s real estate firm Bedrock, the company that has helped lead the CBD renaissance, has just begun developing what will be Detroit’s tallest skyscraper at the former Hudson’s Department Store site.
What will make the $1.0 billion construction project work is that it will be mixed-use, DeGroot says, with residential units and retail space. The estimated 263,000 square feet of office space will match up well with the CBD’s level of demand. Meanwhile, Ford continues to hammer out plans to renovate the iconic but moribund Michigan Central Station it purchased during the second quarter. In addition to renovating and reusing the 500,000-square-foot, 18-story building, the company plans to redevelop the area into a 1.2 million-square-foot campus.