Newmark Knight Frank, a large commercial real estate advisory firm with an office in Detroit, today released its second quarter 2019 office and industrial trends data for the Detroit region. 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.
Overall, demand remains healthy in 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,” says 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.”
On the industrial front, the metro Detroit market vacancy rate fell 10 basis points to 4.1 percent during the second quarter of 2019, as just over 800,000 square feet was absorbed. Year-to-date absorption totaled just over 2.0 million square feet, compared with 2.7 million square feet during the same period last year.
As vacancies continue to dwindle, the bulk of absorption has come from new construction. Limited supply continues to spur new construction activity across the region, particularly for large modern manufacturing facilities. In the second quarter, new construction starts increased 20.0 percent from the previous quarter to nearly 4.2 million square feet, while completions totaled 360,000 square feet.
In southeastern Oakland County, where the vacancy rate is just 2.6 percent, developers are demolishing The Palace of Auburn Hills, former home of the Detroit Pistons, to add new supply where demand has been the strongest in Metro Detroit.
“The rise in construction activity is proof that Detroit’s manufacturing sector continues to be in expansion mode,” says Liesveld. “Fiat Chrysler’s $4.5 billion in new and expanded production facilities in Detroit is leading the charge. Meanwhile, with vacancies so low, the redevelopment of the Palace of Auburn Hills and Summit Place Mall in Pontiac give developers much needed land to build.”
John DeGroot, research director of NKF’s Detroit office, adds: “Since the fourth quarter of 2010, Metro Detroit’s industrial market has seen 35 straight quarters of positive absorption totaling nearly 60 million square feet. The vacancy rate over that period has fallen from 19 percent to just 4.1 percent. By the end of 2019, nearly 20 million square feet of new construction will have been completed since the expansion period began.”
More localized updates are listed below for both the office and industrial markets:
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 Rd. 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.
Southeast Oakland County
The southeast Oakland County industrial vacancy rate fell 40 basis points to 2.6 percent during second-quarter 2019, as just over 352,000 square feet was absorbed. The city of Auburn Hills is Metro Detroit’s hottest industrial market, with a vacancy rate of just 0.09 percent. Since 2017, companies including Wescast Industries, Inc., Mahindra, Esys Corp., AM General Corp., Incoe Corp., Cooper Standard and Samsung SDI America, Inc. have each taken more than 100,000 square feet of industrial space in the city. Demand remains high, as Allison Transmission leased 108,000 square feet on Luella Lane during the second quarter. Other parts of the submarket also continue to see strong leasing activity: Valiant International, Inc. leased 90,000 square feet on Highwood in Pontiac, and Navistar, Inc. took 20,000 square feet on Enterprise Drive in Rochester Hills. Limited supply and persistent high demand have resulted in 3.2 million square feet of new construction completions since 2015. Nearly one-third of those completions were in Auburn Hills. The latest construction completion in Auburn Hills was a 108,000-square-foot speculative development that was completed in 2018 and is now 100 percent leased. In order to continue to meet market demand for new industrial space, developers are demolishing obsolete structures, as available vacant land is just as scarce. Developers Schostak Brothers & Company and Tom Gores recently announced plans to demolish the former Detroit Pistons arena, the Palace of Auburn Hills. The redevelopment of the 110-acre site has the potential to add nearly 1.0 million square feet of industrial space to the metro area. Meanwhile, Ari-El Enterprises Inc. is currently demolishing the former Summit Place Mall in Waterford, which will provide the firm with enough land to also build nearly 1.0 million square feet of industrial/commercial space. In terms of active construction projects around the submarket, FANUC America Corporation is currently constructing a 461,000-square-foot build-to-suit on Entrance Drive in Rochester Hills. The company’s new facility is expected to be completed by fourth-quarter 2019. The balance of Southeast Oakland’s 1.2 million square feet of active construction projects is Ashley Capital’s 695,000-square-foot speculative development in Hazel Park. This development follows the developer’s highly successful 575,000-square-foot Tri-County Commerce Center speculative development in Hazel Park, which is 90.0 percent leased.
Southwest Oakland County
The southwest Oakland County’s industrial vacancy rate fell 20 basis points to 7.1 percent during the second quarter, as just over 247,000 square feet was absorbed. The bulk of the submarket’s absorption came from Veoneer, Inc.’s move into its 180,000-square-foot build-to-suit on American Drive in Southfield. Overall leasing activity was strong during the quarter. Notable deals include Future Pak Ltd.’s 31,000-square-foot deal on Cartier Drive in Wixom; RM Motorsports Inc.’s 26,000-square-foot lease on Wall Street in Wixom; and Leo & Kevin Enterprises, LLC’s 23,000-square-foot deal on Eight Mile Road in Southfield. Meanwhile, Century Sun Detroit Distribution and PM Tech each took 10,000 square feet of new space in Wixom. New construction activity jumped 56.0 percent during the second quarter with the start of Metro Detroit’s largest active build-to-suit project. Hans Power and Water began construction on a 500,000-square-foot facility on Grand River Avenue in Lyon Township, where the company will assemble water filtration devices.
Meanwhile, the submarket has three other major build-to-suit projects under construction in Novi: A123 Systems’ 128,000-square-foot facility on Twelve Mile Road; Berkshire E-Supply’s 211,000-square-foot building on Fourteen Mile Road; and Hexagon AB’s 67,000 square feet on Nadlan Court. Like Auburn Hills, Novi has one of the highest levels of construction activity as the result of demand for large modern industrial facilities. Since 2017, just over 965,000 square feet of mostly build-to-suit industrial facilities greater than 100,000 square feet have been built in Novi. However, Auburn Hills has a 0.9 percent vacancy rate, compared with 7.3 percent for Novi. The bulk of Novi’s available inventory comprises R&D/flex space of less than 30,000 square feet, with the product type having a vacancy rate of 11.0 percent. On the speculative construction front, four projects ranging from 24,000 to 90,000 square feet of general industrial and warehouse space are currently under construction in Novi, Wixom and New Hudson, which are expected to be completed by the end of the year.
The Detroit industrial vacancy rate fell 10 basis points to 12.4 percent during the second quarter, as 218,000 square feet was absorbed. This follows the previous quarter’s increased vacancies in old, third-generation buildings on West Fort Street and Cadieux Avenue. A growing number of companies are building new industrial facilities in the city. Wolverine Packing Company just completed construction on an 180,000-square-foot build-to-suit at 1800 East Canfield Street. Meanwhile, Waymo LLC, an affiliate of Google, Inc. and manufacturer of self-driving car systems, is upgrading the former American Axle plant in Hamtramck. Automotive supplier Tiberina Group plans to build a new manufacturing facility near that location. In addition, Dakkota Integrated System plans to build a 600,000-square-foot manufacturing plant in the city. All of this comes on the heels of Fiat Chrysler beginning construction on a new, $1.6 billion production facility at the Mack Engine complex. The new production facility is scheduled to be completed in late 2020.
The Macomb County industrial vacancy rate edged up 10 basis points to 2.3 percent during the second quarter, as just over 33,000 square feet of net vacancies were added to the market. The bulk of negative absorption came from a 130,000-square-foot vacancy at 7000 Nineteen Mile Rd. in Sterling Heights. Despite the uptick in vacancy, demand in the submarket remains brisk, with many buildings being re-leased or sold before going vacant. A few notable deals include MMI Engineered Solutions Inc.’s purchase of an 80,000-square-foot facility on Stephens Road in Warren; Weaver & Lipke, LLC’s purchase of a 42,000-square-foot building on Lipke Street in Clinton Township; and Frank Bacon Machinery Sales Company’s purchase of a 29,000-square-foot building on Ryan Road in Warren. Active construction activity rose 20.0 percent during the quarter to just over 1.0 million square feet. The latest project is a 110,000-square-foot production facility for SAPA Transmission that is being built on Twenty-Four Mile Road in Shelby Township. Macomb has two other build-to-suits under construction, one for HTI Cybernetics Inc. in Sterling Heights and the other for Kroll International Inc. in Shelby Township. Active speculative construction includes: Ashely Capital’s 569,000-square-foot Liberty Park facility on Mound Road in Sterling Heights; Niko’s 65,000-square-foot building on Regency Center Drive in Macomb Township; and C&D Building Company LLC’s 18,000-square-foot facility on Central Industrial Drive in Shelby Township.
Western Wayne County
The western Wayne County industrial vacancy rate fell 20 basis points to 2.6 percent during the second quarter, as just over 116,000 square feet was absorbed. Accounting for the bulk of absorption was XPO Last Mile, Inc.’s 40,000-square-foot expansion on Michigan Avenue in Canton; Anderson Process’s 35,000-square-foot lease on Concept Drive; and Powers And Sons, LLC’s 27,000-square-foot deal on Galleon Drive in Plymouth. On the construction front, automotive supplier Webasto Roof Systems Inc. started construction on a 300,000-square-foot manufacturing facility at Schoolcraft & Haggerty Roads in Plymouth. Since 2017, just over 2.6 million square feet of industrial space has been completed in Western Wayne. The bulk of new construction, 2.4 million square feet, has been for bulk warehouse users, including Amazon, Inc., Republic National Distributing Co, Experi-Metal Inc. and Penske Logistics LLC. Webasto’s new facility will be the submarket’s fourth significant manufacturing facility built in the past two years. The other three facilities were built for Oerlikon Metco, CW Bearing USA Inc. and Marimba Automotive.
Southern Wayne County
The southern Wayne County industrial vacancy rate fell 20 basis points to 2.1 percent during the second quarter, as nearly 73,000 square feet was absorbed. Demand for bulk warehouse remains strong, as tenants quickly refilling new availabilities. Beaumont Health recently moved into 124,000 square feet in the Crossroads Distribution Center in Belleville. Elsewhere in the submarket, Uncle Ray’s LLC leased 90,000 square feet at 20509 Sibley Road in Brownstown, and Mattress Firm, Inc. took 47,000 square feet in the Van Buren Commerce Center. Southern Wayne’s bulk warehouse inventory remains very limited. Notably, the submarket’s 13.0 million-square-foot inventory of Class A bulk warehouse space is 100 percent occupied. Moreover, just 2.8 percent of the submarket’s 13.5 million-square-foot inventory of Class B bulk warehouse space sits vacant.