07/17/2019 | Press release | Distributed by Public on 07/18/2019 14:57
Newmark Knight Frank (NKF) released its second quarter 2019 office trends data for the Detroit region this week. According to the reports, Metro Detroit's office market vacancy rate fell 30 basis points to 15 percent during the second quarter of 2019, as just over 216,000 square feet was absorbed. Demand remains healthy in the city of Detroit, as well as in a few of the suburban submarkets of Southfield, Troy, Farmington Hills and Birmingham. Ann Arbor's office market also is seeing a surge in office demand. On the flip side, Novi is seeing large vacancy upswings after losing two major office users. In Livonia, demand remains soft.
'The city of Detroit continues to see large gains in high-tech office users such as Microsoft, Waymo, LinkedIn and Google, Inc., which is now expanding its presence,' said Fred Liesveld, managing director of NKF's Detroit office. 'Significant investments by the automotive industry into autonomous and smart vehicles should support additional growth of these tech companies in Detroit. '
The City of Detroit's overall office vacancy rate fell 60 basis points to 12.5 percent during the second quarter of 2019 as just over 85,000 square feet was absorbed. In the New Center Corridor, the vacancy rate fell 240 basis points to 13.4 percent with just over 39,000 square feet being absorbed. United Way for Southeastern Michigan's move into 36,000 square feet in the Fisher Building accounted for the bulk of the Corridor's absorbed space. Detroit's CBD Corridor vacancy rate fell 40 basis points to 12.4 percent during the quarter as nearly 46,000 square feet was absorbed. Office demand in the CBD remains healthy. One of the more notable deals was Quicken Loans' 41,000-square-foot lease that Molina Healthcare recently vacated when it consolidated its employees into its Troy location in late 2018. Meanwhile, Google is planning to expand its presence Downtown. The company currently occupies 30,000 square feet on Henry Street adjacent to the Little Caesars Arena and plans to lease another floor in the building by 2020. IBM is also joining the companies moving from the suburbs or expanding in the Downtown market. The company is moving from its 18000 West Nine Mile Road in Southfield and taking 10,000 square feet in the Ally Detroit Center at 500 Woodward Avenue by the end of the year. Other major companies who recently expanded or moved to the CBD include Microsoft, LinkedIn, Universal McCann, WeWork and Waymo. While most companies are leasing existing office space, several are constructing new office buildings. Little Caesars has nearly completed construction of its $150.0-million, nine-story, 234,000-square-foot world headquarters at the corner of Woodward Avenue and Columbia Street. Chemical Bank is building a 20-story, 250,000-square-foot high-rise at Woodward Avenue and Elizabeth Street. Additionally, the law firm Warner, Norcross, & Judd pre-leased 30,000 square feet on an Olympia Development Co., LLC development at 2715 Woodward Avenue, located in The District Detroit.
Troy's office market vacancy rate fell 20 basis points to 17 percent during second-quarter 2019 as just over 37,000 square feet was absorbed. Three of the larger deals were Edag, Inc.'s 22,000-square-foot lease at 1650 Research Drive, EASi's 20,000-square-foot deal at 340 East Big Beaver Road and LG Chemical's 16,000-square-foot lease at 1960 Technology Drive. Other notable deals around the submarket include Orbbec's 7,000-square-foot lease on Livernois Road, Revize LLC's 9,000-square-foot deal at 150 Kirts Boulevard and Diversified Restaurant Holdings Inc.'s 6,000-square-foot lease at 5750 New King Drive. 901 Tower Drive saw the largest new vacancy after EASi's relocation. The submarket's Class A vacancy edged up 20 basis points to 7.8 percent during the quarter as just under 6,000 square feet of new vacancies hit the market. The Class B market saw the bulk of leasing activity as the vacancy rate fell 40 basis points to 20.6 percent as just over 44,000 square feet was absorbed. The overall trend for the Troy office market has been consistently positive, as the submarket has posted seven consecutive quarters of positive absorption. Since fourth-quarter 2017, the overall vacancy rate has fallen 340 basis points. Average asking rents responded, increasing 3.3 percent during the near-two-year period.
The Southfield office market vacancy rate fell 20 basis points to 21.2 percent during the second quarter as just over 32,000 square feet was absorbed. Notable deals during the quarter include Northwestern Technological Institute's 20,000-square-foot lease at 24800 Northwestern Highway and American Mortgage Consultants' 12,000-square-foot lease at Travelers Tower I on Evergreen Road. Positive absorption is welcome news for the submarket after posting just over 200,000 square feet in new vacancies during the first quarter as HAP relocated to Troy. Despite that large vacancy, the submarket's overall vacancy rate is down 20 basis points from a year ago, primarily due to increased demand in the Class B market. The Class B vacancy rate fell 60 basis points to 22.9 percent from the previous quarter and 370 basis points from a year ago. Vacancies in the Class A market are trending upward with new availabilities. The Class A vacancy rate increased 10 basis points to 18.6 percent during the second quarter and 100 basis points from the same time last year. However, large expected moves into the Town Center Complex in the coming quarters will likely reverse this trend. Looking ahead, the submarket will see a large vacancy as IBM vacates 30,000 square feet at the Class C 18000 West Nine Mile Road office tower as the company relocates to the Detroit CBD.
The Farmington Hills office market vacancy rate fell 50 basis points to 9.9 percent during the second quarter as just over 48,000 square feet was absorbed. Haggerty Pointe saw vacancies fall by 21,000 square feet as The Rehmann Group and Dowaksa USA LLC leased space in the building. Meanwhile, in Westhills II on Twelve Mile Road, Lytle Medical Technologies took 12,000 square feet of office space. The Class A vacancy rate edged up 40 basis points to 11.4 percent during the quarter with just under 10,000 square feet in new vacancies. The Class B vacancy rate fell 190 basis points to 7.4 percent during the second quarter as just over 57,000 square feet was absorbed. Overall demand is healthy in the submarket as the overall vacancy rate fell has declined 280 basis points over the past four quarters. Much of that decline was from a strong first-quarter 2019, which saw Harman International Industries, Inc., Open Dealer Exchange LLC and TRW Automotive US, LLC taking large blocks of office space.
Two major companies are set to expand in the Ann Arbor market. KLA Corporation announced plans to build a 230,000-square-foot research and development facility at Ann Arbor Technology Park near Dixboro Road and Goss Road. KLA Corporation signed a 50,000-square-foot lease in the Northeast Corporate Center located at 2350 Green Road until the company completes its new facility in 2021. Google announced it is expanding its presence in Detroit and Ann Arbor. In 2016, Google added on to its Ann Arbor headquarters on Traverwood Drive that now totals roughly 133,000 square feet. The company said it plans on taking on another significant block of space in North Ann Arbor by 2021. Meanwhile, the Northeast Office Corridor's vacancy rate fell 200 basis points to 2.3 percent during the second quarter, mostly on leasing activity from KLA Corporation. The Briarwood Corridor's vacancy rate also fell 200 basis points to 3.5 percent during the quarter. Celsee, Inc.'s 13,000-square-foot lease in The Wickfield Center at 100 Phoenix Drive was one of the Corridor's larger leases. 555 Briarwood Circle also saw leasing active from various tenants, contributing to roughly 10,000 square feet of absorption for the building. Ann Arbor's CBD Corridor vacancy rate edged up 60 basis points to 4.0 percent during the second quarter. Various new vacancies at One North Main and 220 East Huron Street accounted for much of the spike.
Novi's office market vacancy rate jumped 260 basis points to 12.5 percent during the second quarter as nearly 47,000 square feet in new vacancies hit the market. The bulk of negative absorption came as South University vacated its 40,000-square-foot facility at 41555 West Twelve Mile Road. This is the second largest recent vacancy in Novi. During the previous quarter, The Art Institute of Michigan vacated 50,000 square feet from Haggerty Corporate Office Centre. Leasing activity during the second quarter was made up of smaller office users taking approximately 1,500 square feet at Crystal Glen Office Centre. The loss of South University and Art Institute of Michigan users has doubled the submarket's vacancy rate, which stood at 6.8 percent at the beginning of 2019.
Livonia's office market vacancy rate edged up 70 basis points to 13.3 percent during the second quarter as just over 5,000 square feet in new vacancies was added to the market. Livonia's office market has largely been stagnant over the past three years with the vacancy rate hovering at just over 13 percent. The only major absorption came in 2017 when Masco completed construction of its new 91,000-square-foot headquarters on College Parkway. The vacancy rate briefly dipped below 12 percent in 2018 but trended back to around 13 percent since.
Birmingham's overall office market vacancy rate fell 290 basis points to 7.9 percent during the second quarter as just over 16,000 square feet was absorbed. The bulk of leasing activity was in the submarket's CBD Corridor, which saw vacancies fall 360 basis points to 9.6 percent during the second quarter. Birmingham Towers at 280 North Old Woodward Avenue saw tenants such as Work Company, LLC and Farm Bureau Insurance taking on office space. Meanwhile, after posting vacancies following Google, Inc.'s relocation to Detroit, 325 N Old Woodward Avenue is quickly releasing space as the building absorbed roughly 15,000 square feet during the quarter. Strong demand was also evident in the prior quarter as Universal McCann immediately subleased its 21,000 square feet of office space on Old Woodward, following the marketing firm's move and expansion into the Detroit CBD.
About Newmark Knight Frank
Newmark Knight Frank ('NKF'), operated by Newmark Group, Inc. ('Newmark Group') (NASDAQ: NMRK), is one of the world's leading and most trusted commercial real estate advisory firms, offering a complete suite of services and products for both owners and occupiers. Together with London-based partner Knight Frank and independently-owned offices, NKF's 16,000 professionals operate from approximately 430 offices on six continents. NKF's investor/owner services and products include investment sales, agency leasing, property management, valuation and advisory, diligence, underwriting, government-sponsored enterprise lending, loan servicing, debt and structured finance and loan sales. Occupier services and products include tenant representation, real estate management technology systems, workplace and occupancy strategy, global corporate services consulting, project management, lease administration and facilities management. For further information, visit www.ngkf.com.
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