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HEARTLAND SNAPSHOT, NOVEMBER 2005
Detroit Office Market
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Dan Dolsen
Principal
Trammell Crow Company
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In the office sector in Detroit, market conditions are slowly solidifying. Vacancies are steady and, while still in use, rent concessions such as free rent and in-suite improvements are employed in more limited amounts, says Dan Dolsen, principal and area director for Trammell Crow Company in Detroit. The Detroit office market continues to suffer from the fallout of the automotive industry's job cuts and consolidations. Currently, Michigan's two biggest counties, Wayne and Oakland, are two of the weakest job markets in the nation.
Though statistics illustrate a somewhat struggling office environment, market conditions have indicated that the office sector is stable, with the 15.6 percent vacancy rate for Class A properties slightly higher than it was a year ago. Vacancies across all property classes currently stand at 16 percent in metro Detroit.
Vacancies are stable and limited absorption continues to register even as new projects come online throughout the city. New construction has been well received by the local tenant roster. According to Dolsen, there are currently 26 buildings under construction in the Detroit metro area that total approximately 1.58 million square feet of new space.
Three major projects underway include Lear Corporation's new 105,000-square-foot headquarters in Southfield, Michigan, set for completion in January 2006; the Michigan First Credit Union in Lathrup Village, Michigan; and One Kennedy Center, a 235,000-square-foot office building currently underway in the city of Detroit.
“Oakland County continues to attract corporate growth through Automation Alley,” Dolsen says. The majority of current office development is taking place in Oakland County (809,027 square feet), followed by Wayne County (514,800 square feet), Washtenaw County (159,000 square feet) and Macomb County (99,708 square feet).
Much of the leasing activity comprises tenants upgrading from existing locations to better facilities while rents are low. Companies are seeking shorter-term 3-year leases instead of the more typical 5- or 10-year transactions. Rental rates in metro Detroit have remained flat since 2004, a continued trend that indicates the market's anticipation of problems to come off the effects of Kmart's relocation and the automotive industries struggles. Rents range from $18 to $28 per square foot depending on the quality and size of the space.
As the office market continues to recover, Dolsen expects Auburn Hills and Troy, submarkets to receive increased attention in the near future. Those two cities, along with Southfield, are relatively dynamic now and should receive more activity as the office sector slowly recovers.
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