High vacancy rate compounded by lack of tenants.

by admin

Few parts of the country have been harder hit than Detroit in the current recession. While it appears at first glance that the industrial sector has had it worse, the office sector has felt the pinch as well. Vacancies and downsizing are seen at the office buildings occupied by third-party vendors, advertisers, lawyers and accountants related to the auto industry.

“There is a large trickle-down effect in just about every segment of the office market,” says Fred Klugman, president of Detroit-based Klugman Commercial.

Office vacancies continue to creep up in the Detroit office market, but new leases are hard to come by. “There just have not been that many tenants in the market to fill up all the vacant space that is available,” Klugman says. “What’s happening is there are not many new tenants in the market, and most of the existing tenants’ landlords are able to retain them by offering aggressive deals. So, you’re not seeing a bunch of movement.”

Landlords have not given up, though. As a way to persuade tenants to sign at their properties, many landlords are offering bigger and bigger concessions in the form of lower rental rates and increasing amounts of free rent. This has created a prime tenant’s market for those that are looking for good deals. Unfortunately, those tenants in the market are being more cautious.

There are still national tenants that have their eye on Detroit, but few are making moves right now. One notable exception is the General Services Administration, which completed several large lease renewals earlier this year. The government entity also recently sent out another proposal looking for approximately 86,000 to 87,500 square feet in Detroit. “They are one of the few bright spots in downtown Detroit, as far as new tenancy coming into buildings,” Klugman says.

While the news may not be as sunny for Detroit as many would like, there is cause for some optimism. When national tenants search for space, they almost always take a look at Detroit because even though the market has declined, it really is the perfect time to move to the city.

“The fact that we have all this vacancy and all this unemployment is not really a bright spot, but I think there are some national tenants that are looking at Detroit because of the availability of high-quality, inexpensive office space and the availability of a skilled labor force that is in desperate need of jobs,” Klugman says, adding that incentives being provided by the state of Michigan to out-of-state companies to relocate only adds to the appeal of Michigan cities such as Detroit.

— Coleman Wood

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