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FARMINGTON HILLS, MI-Available sublease space in metropolitan Detroit fell during second quarter for the first time in more than 18 months, according to Paragon Corporate Realty Services. Metro Detroit had about 2 million sf available for sublease in its class-A and class-B office buildings at midyear 2002.

That’s about 54,452-sf less than at the end of first quarter, says Matthew Fenster, executive director of the company.

The area also posted more moderate gains in its overall vacancy rate than in recent quarters, Fenster adds. The combined class-A and class-B markets in the city of Detroit and the suburbs crept up 1.26 points to 15.1% during second quarter. The suburban class-A sector’s vacancy rate leveled off at 12.6% at midyear, another positive sign, he says.

“It’s the first time since late 2000 that available sublease space hasn’t increased,” Fenster says. “It’s another indicator that metro Detroit’s office market has truly bottomed out. I think the worst is over, but that our market will remain flat through the end of 2002.”

Overall competition for tenants remained very stiff at midyear, forcing more landlords to discount rental rates between five and 10 percent, Fenster said. More landlords also offered free rent–usually two to three months on a typical five-year lease–and broker incentive programs during second quarter, he says.

Asking rental rate averages fell slightly, hitting $25.09 per sf in the suburbs and $23.64 per sf in Detroit for class-A properties, while class-B rents averaged $21.45 per sf in the suburbs and $18.79 per sf in the city, he reports.

Ongoing major corporate bankruptcies and accounting irregularities shook investor and consumer confidence, and dampened early expectations for a slightly improved real estate market by year-end, he says.

“The demand for real estate will not pick up until the overall economic outlook brightens. I don’t see that happening until at least first quarter 2003. The full economic impact of these corporate accounting scandals remains to be seen,” Fenster says.

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