Paragon Offers 2nd Quarter Office Update

Rents are stabilizing as companies fill into the space made available in 1999, according to Paragon Corporate Realty Services, which has published its 2nd quarter review of the suburban Detroit office market.The suburban class A and B markets recorded nearly 300,000 sf of positive net absorption in the second quarter, raising year-to-date absorption to 466,400 sf, says the report.The class A vacancy rate reached 10.22%, its first time in double digits in more than 18 months.

Executive Director Matthew Fenster said as the suburbs absorbed the more than 2 million sf added in the last 30 months, large tenants are relocating and creating temporary jumps in Class A vacancy. The average rent for class A space stood at $24.63 psf.”The rental rates will stabilize after going through this aggressive growth pattern. There was a lot of pent-up demand that was satisfied. Now, leasing will be steady, but the development will not be as aggressive,” he told GlobeSt.com.

Troy absorbed very well, but the I-275 corridor is still moving slowly.”That area is the most shallow of the suburban market,” he continues. “With Victor Corporate Park and Victor Park West, they just dumped about 25% more office space on that area.”

A lack of property for sale has persisted, after a flurry of property traded hands between 1996 and 1998. Most owners who wanted to sell have sold, and the remainder are likely to hold their assets until interest rates drop, he said.Speculative development continues, according to Fenster, but projects tend to be smaller. The typical project at mid-year is 80,000 sf or less, compared with 100,000 sf in the prior two years.Developers have adopted a more cautious approach, based on economic indicators, higher vacancies and the protracted length of the current real estate market, according to the report.

Notable transactions include:¥ In the I-275 corridor, Burton Katzman purchased 14.4 acres of land in Livonia’s Victor Corporate Park for an estimated $7.5 million.¥ Covisint leased 80,000 to 100,000 sf in the Maccabes building at Northwestern and Civic Center in Southfield.¥ In Troy, Standard Federal relocated its mortgage group to the Troy Office Center and now offers 146,000 sf in its headquarters for lease.