At a time when downtown Detroit is in the midst of a civic renaissance, the state of the city’s multifamily real estate market is both a reflection of larger trends and a sign of what might be in store for the Motor City in the years ahead.
To keep a pulse on the market, Broder & Sachse Real Estate compiles a market study twice a year to evaluate the rental and occupancy rates of all multifamily properties downtown.
Through this research, the continued strength of Detroit’s multifamily market is abundantly clear, with an average occupancy rate of 95.6 percent across downtown in winter 2018. This occupancy rate indicates demand is high, especially coupled by the findings in the Downtown Detroit Partnership’s third Greater Downtown Residential Market Study released in 2017. The study estimated that an additional 10,000 units will be needed over the next five years.
The need for these additional 10,000 units means supply — or a relative lack thereof — is also part of the equation. While the number of residential units in Detroit has increased by a great deal on a percentage basis, in relative terms the volume of quality residential product is still somewhat limited. Today, there are still fewer than 8,000 professionally managed market-rate apartments in downtown Detroit.
While new residential properties continue to come on line — there are more than 1,850 units under construction and nearly 700 additional units proposed — it takes 18 to 24 months to bring new projects to market. As such, demand is expected to exceed supply for the foreseeable future. This is fundamentally different from what’s happening in larger coastal markets, even Chicago, where rumblings about oversaturation or overbuilding are being heard.
Over the last decade, Detroit’s multifamily landscape has changed dramatically. Businessman Dan Gilbert’s decision in 2010 to move the headquarters of Quicken Loans downtown was a catalyst — a true tipping point for downtown growth, revitalization and redevelopment.
Much has changed in that time, as the city emerged from municipal bankruptcy and began adding jobs again. Forward-thinking business leaders have moved their operations to the downtown core from the suburbs or out of state, showing that the sustained economic prosperity and a civic renaissance has made Detroit a popular destination for business owners and new residents alike.
The impact of the Great Recession left Detroit with an unemployment rate of 28 percent in mid-2009, according to the U.S. Bureau of Labor Statistics. Eight years later in 2017, the city reached an unemployment rate of 7.1 percent — the lowest in 17 years.
There is demand for quality residential options complete with an
amenity-rich experience, but population growth also displays a multigenerational demographic profile, appealing to people of all ages and backgrounds.
Essential services (medical treatment centers and grocery stores) and lifestyle retail (clothing stores and fitness centers) continue to expand along with a wider variety of dining and entertainment options, but there is no doubt that downtown Detroit remains somewhat behind the national curve in that regard.
The good news is that the city has been making up for lost time in recent years, and momentum is not only welcome and exciting, but attracts and supports continued residential growth. Parks and outdoor/green spaces are emerging. And community programming, including public art and statuary, is enhancing residential communities across the city.
Detroit’s multifamily market includes a diverse range of neighborhoods. The following data indicates the rates and availability at the time we conducted the research in our market study at the start of the year.
Midtown: Located along the east and west side of Woodward Avenue north of downtown Detroit up to I-94, Midtown features the largest concentration of cultural, educational and medical institutions in Southeast Michigan.
Midtown reports 97 percent occupancy with an average rental rate of $2.17 per square foot, ranging from studios that average $933 per month up to three-bedroom units, most of which rent for around $2,849 per month. One notable project is The Scott at Brush Park.
Grand Circus Park: The Grand Circus Park district, which was first listed on the National Register of Historic Places in 1983, connects the city’s theater district with its financial district. It is bisected by Woodward Avenue, four blocks north of Campus Martius Park.
Grand Circus Park currently boasts the highest average rent in downtown Detroit ($2.12 per square foot), and reports 98.8 percent occupancy. Average rents in Grand Circus Park range from $1,083 for a studio, to $2,063 for a two-bedroom, up to $4,475 for a three-bedroom. Properties to highlight include Broderick Tower and The David Whitney Building.
Central Business District: The city’s Central Business District (CBD) features high-rise residential living along with several parks, including those linked by a promenade along the Detroit International Riverfront. The CBD contains 34 percent of downtown Detroit’s apartments and reports 94.2 percent occupancy. The average monthly rent is $1,931, with a $1.80 average per square foot. Notable properties are The Albert-Capitol Park, The Lofts at Merchants Row and 28 Grand.
Corktown: To the west of Grand Circus Park and the CBD is the Corktown submarket, Detroit’s oldest neighborhood. The neighborhood is largely residential and was first included on the National Register of Historic Places in 1978. Corktown contains the
majority of the open loft space in downtown Detroit and reports 96.8 percent occupancy, with average monthly rates of $1,241 and a $1.30 per-square-foot average. Notable properties are Lafayette Lofts and Riverfront Towers.
Lafayette Park: Located on the city’s lower east side directly south of the Eastern Market Historic District, Lafayette Park is part of the Mies van der Rohe Residential District listed on the National Register of Historic Places.
This residential neighborhood contains the majority of three-bedroom apartments in downtown Detroit and reports 91.3 percent occupancy. Monthly rental rates average $1,743, and $1.62 per square foot. Significant properties include City Place Detroit and Ducharme Place.
City has bright future
Rising residential population downtown, coupled with continued strong tenant demand, is clearly the driving force behind Detroit’s ongoing urban renaissance. Three to five years from now, I expect to see several thousand new residential units in the market amid a continuing surge of corresponding commercial, dining and entertainment growth.
The perception of downtown Detroit has justifiably changed in recent years, and the strong multifamily marketplace suggests that positive change is likely to be a permanent one.
— By Richard Broder, CEO, Broder & Sachse Real Estate. This article originally appeared in the May 2018 issue of Heartland Real Estate Business magazine.