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Is the Motor City Office Market Idling or Roaring?

Kristin Harlow — Thu, 09 Feb 2023 12:45:57 +0000

By Andy Gutman, Farbman Group It’s no secret that the last few years have been a turbulent time for the office market nationally. While Detroit has fared somewhat better than some other cities across the Midwest, the same pandemic (and now post-pandemic) pressures have led to a higher-than-usual degree of uncertainty and volatility. Here in the early part of 2023, it’s a good time to take a step back and look at how the Detroit office landscape is changing, how it’s not changing and what might be in store throughout the rest of the year — and beyond. This is a unique time because there’s still a tremendous amount of uncertainty to factor into the commercial real estate market in general, and into office specifically. There are a lot of brands and businesses who either have not made up their mind about their office structure and needs going forward, or are still in an experimental post-pandemic period where they are trying to figure out the balance that works for them in terms of remote or hybrid work options and brick-and-mortar configurations. Until more of that uncertainty is resolved, a clear picture of the medium- and long-term prospects for the office…

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Like Football Team, Detroit Retail Sector Roars Back

Kristin Harlow — Thu, 02 Feb 2023 12:45:52 +0000

By Evan Lyons, Encore Real Estate Investment Services Looking back on 2022, it could be said that Detroit’s economic performance last year mirrored that of the city’s tenacious Detroit Lions’ football season. Both were mired in doubt, plagued by volatility and sustained by grit, yet beyond all expectation, when the clock ran down, both proved the naysayers wrong. Just as the Lions surprised doubters by finishing their season at 9-8 and beating their divisional rivals, the Green Bay Packers, Detroit surpassed expectations by outpacing the national jobs growth rate of 5.8 percent at mid-year 2022 with a rate of 8.6 percent year-over-year. Gains in employment and wages are expected to continue over the next few years, according to a University of Michigan study. The city bolstered its “offensive line” with new store openings and new construction throughout the urban core. Stadiums and parks were filled again, fueled by crowd-pleasing events and programing, including Belle Isle parks’ notorious, over-waxed giant slide, which went viral and gained infamy last year for catapulting riders who dared venture a ride. Detroit also scored points in visits to leisure and hospitality establishments during the past 12 months. Visits increased by 50 percent from June…

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Five Factors Defining the Grand Rapids Office Market

Kristin Harlow — Thu, 10 Nov 2022 12:45:59 +0000

By Jeff Karger, JLL There’s no doubt that the office market today is much different than what it was five years ago. Employers across the nation have had to adjust their work models, time and time again, to meet the needs of their employees — and those in Grand Rapids are no exception. As landlords, employers and employees adapt to these changes, it’s important to understand the direction of the office market. Below, check out five factors that are defining it. 1. A flight to quality Like many other cities across the nation, Grand Rapids is experiencing a resounding flight to quality. Employers are seeking Class A and trophy spaces to appeal to their employees and offer them an experience, rather than just a cubicle to work in. Some of these office features can include free fitness centers, onsite cafés, coffee shops and restaurants, outdoor terraces and more. Plus, according to JLL research, 59 percent of employees expect to work at a company that supports their health and well-being. Interestingly enough, employees prioritize this over salary — a key reason why companies and landlords alike are investing in amenitized spaces with up-to-date HVAC systems, exercise classes and healthy food options.…

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The Inside Lane: How the Motor City is Pulling Ahead of Other Midwest Markets

Kristin Harlow — Thu, 03 Nov 2022 11:45:20 +0000

By Andy Gutman, Farbman Group This is a complicated and even confusing time for anyone trying to make sense of the commercial real estate market. Conflicting economic indicators and pervasive concerns about inflation — and even the potential for a recession — create a somewhat cloudy outlook, even as promising opportunities remain in some markets. In the Midwest, there are noticeable market-specific differences that give a sense of just how much variability there is across the region. Taking a closer look at the commercial real estate in a city like Detroit — where the commercial real estate investment activity remains high — and comparing it with other Midwest markets in terms of retail activity, receivership rates, commercial real estate taxes, crime rates and urban revitalization efforts, can start to give us a better sense of how and why some Midwest markets are currently viewed as more favorable than others. It can also give us a feel for what investors and commercial real estate decision-makers are likely to be evaluating when they look at how to spend their dollars in the months and years ahead. Detroit looking good What is it about Detroit that makes it an appealing commercial real estate…

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Office Activity Picks Up in Metro Detroit as Tenants Make Workplace Decisions

Kristin Harlow — Thu, 28 Jul 2022 11:45:45 +0000

By Ryan Nierman, Ph.D. and Bradley Meloche, Colliers The tumultuous events of the last two years have brought uncertainty into many aspects of Detroit’s office market. Even as companies emphasize their eagerness to return to the office, many questions remain regarding space designs, required square footage and buildout requirements. Tenant selectivity With increasing vacancy rates and negative net absorption throughout the metro Detroit office market, real estate experts are witnessing tenants becoming more selective in property occupancy. The result has been a slowing demand for Class B and C office product. Tenants have begun targeting Class A assets with improved visibility, signage, modernized color schemes, numerous amenities and flexible floorplan designs. As the need for larger office footprints goes down in reaction to post-COVID considerations, tenants have become willing to pay increased per-square-foot rents, for at or below preexisting rental budgets, due to decreased size requirements. The need for tenants to target Class A facilities has been compounded by the so-called “Great Resignation,” as employees are willing to demand more from their employers. As a result, employers know that a failure to invest in a more modern and amenitized workspace may result in poor employee retention and future talent recruitment. …

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Detroit Industrial: Bright Future, Ready for Anything

Kristin Harlow — Thu, 21 Jul 2022 11:45:21 +0000

By Anthony Avendt, Cushman & Wakefield Like most markets in the U.S. and Canada, Detroit’s industrial sector has seen its ups and downs. Detroit’s always been a bit of an outlier though due to extreme volatility. What’s more, we’ve (hopefully) learned lessons from past downturns that well position the city and its commercial real estate regardless of continued strong demand and rent growth or any bumps in the road we may encounter. Detroit is a little different from similar-sized markets in the region. First, while it’s certainly part of the U.S. heartland, the city’s geographic position on a peninsula means it’s poorly suited for broad distribution to large swaths of the country. Second, of course, is the auto industry’s impact. The auto industry is widely dispersed across the U.S. now, but Detroit and Michigan remain its heart and brain. As the sector pivots to autonomous and electric vehicles, that is going to drive demand for industrial space. Ford already has announced an investment of $40 to $50 billion over the next decade-plus, including redevelopment of Michigan Central Station as anchor of its Mobility Innovation District. Stellantis, the parent of Chrysler, Jeep and Dodge, has announced its own $35.5 billion investment…

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Detroit Retail Market Running Strong as New Year Begins

Kristin Harlow — Thu, 17 Feb 2022 12:45:58 +0000

The “retail apocalypse” predicated on the pandemic never really materialized. Instead, we’ve seen retail do what it always does: evolve. Much as the rest of the country, metro Detroit’s retail real estate market has evolved and come back in a big way. Tenants on the move As vaccines were adopted and the economy allowed to reopen, the economic rubber band snapped back quickly and stronger than many of us could have predicted. Retailers were dusting off pre-pandemic expansion plans and back to signing leases in 2021. We saw new openings and new market searches from BJ’s Wholesale Club, Burlington, Carvana, Chick-fil-A, Chipotle, Starbucks, Crunch Fitness, Edge Fitness, Gabe’s, iFly, Jollibee, Meijer, Portillo’s, Ross, Shake Shack, Smoothie King, T.J. Maxx, Total Wine & More and Tropical Smoothie Café. 2021 also presented a big void in the Michigan furniture market following the bankruptcy of Art Van (which controlled 30 to 35 percent of the market). Numerous players including Gardner White Furniture, Ashley Furniture and Value City Furniture all quickly snapped up this real estate, immediately increasing their market share. Other categories that continue to seek space include car washes (which has to be one of the most active categories out there…

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Office Downsizing Trend in Detroit Will Likely Continue in 2022

Kristin Harlow — Thu, 10 Feb 2022 12:45:17 +0000

A lot has changed in the world since the beginning days of the COVID-19 pandemic in early 2020. Fast forward to November 2021 and the world is a very different place. Over 46 million people have been infected in the United States alone with over 750,000 deaths officially attributed to the virus. Most businesses have been forced to shut down in-person work for some period of time and many have instituted remote work programs until the beginning of 2022. The real question on everyone’s mind is when will we return to normal and more specifically, what will the new normal look like? Although we will most certainly have to deal with the aftereffects of COVID-19 and any variants that surface, there is light at the end of the tunnel. To date, approximately 427 million doses of the vaccine have been administered with over 192 million people fully vaccinated. Recently, Pfizer announced that it has developed an easy-to-administer COVID-19 pill, which when used in combination with a widely used HIV drug, can cut the risk of hospitalizations or death by 89 percent in high-risk adults who have been exposed to the virus. Given the combination of vaccinations, natural immunity for those…

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Auto Innovation Continues to Drive Detroit Industrial Market

Kristin Harlow — Thu, 26 Aug 2021 11:45:43 +0000

By Anthony Pellegrino III, P.A. Commercial Detroit is the industrial, transnational logistics and auto powerhouse of the Midwest. Detroit has continued year after year to grow and transform its industrial sector in three prominent geographical locations. Each of these locations is anchored by auto innovation, creating a stable market for suppliers and transport: 1. The Mount Elliot Employment District: This is the home of General Motors’ $2.2 billion investment into its existing Hamtramck Assembly. GM is renaming it “GM Factory Zero” to represent its full dedication to electric vehicle production. 2. Southeast Detroit: Fiat Chrysler’s $2.5 billion expansion to Jefferson North includes a new 1.4 million-square-foot Mack Avenue Engine Complex. This is part of a total $4.5 billion earmarked for Michigan plants. 3. Southwest Corktown: Ford is conducting an ongoing investment of $1.45 billion into its autonomous vehicle campus in an area called Corktown. The multi-building transformation is near Detroit’s international bridge and tunnel. Each area contains various tax incentivized Opportunity Zones, New Market Tax Credits and qualified HUB Zones. According to Costar Group MLS, Greater Detroit has a healthy 4.6 percent vacancy rate while Detroit proper has a 9.45 percent vacancy rate for industrial buildings. Much of the 9.45…

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Why Multifamily Investors Are Revved Up for the Motor City

Kristin Harlow — Thu, 19 Aug 2021 11:45:34 +0000

By Jason Krug, Berkadia Sunbelt states are top of mind for multifamily investors these days, as COVID-19 has accelerated the trend of renters leaving major cities in search of more space and a better cost of living. Of course, the allure of sunshine and warm weather is hard to compete with, but cities across the Midwest are also seeing a spike in interest from renters and investors and chief among them is Detroit. There has been overwhelming interest in multifamily opportunities in and around the city, as investors looking for yield move beyond core and core-plus markets in search of real value deals, which Detroit has aplenty. So, what’s driving this interest, and why should more investors be paying attention to Detroit? There are a few key reasons. Solid fundamentals Limited supply of new units being delivered across the state will continue to drive organic rent growth. As is the case across the country, there is a shortage of housing throughout Detroit and the metro area. Although Detroit’s population growth is smaller compared to the South and Southeast, the region has a fraction of the units coming out of the ground as the South and Southeast, paving the way for…

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Metro Detroit’s Office Market Outlook Varies for Different Submarkets

Kristin Harlow — Thu, 18 Mar 2021 11:45:55 +0000

By Steve Eisenshtadt, Friedman Real Estate 2020 was a challenging year for the office market. The pandemic caused record-high unemployment earlier in the year. Offices were forced to close, and employees quickly learned to work remotely since March. The office market in metropolitan Detroit ended 2020 with an 18.4 percent direct vacancy rate and 19.5 percent when adding in available sublease spaces, which increased to over 1 million square feet throughout the metropolitan area. In 2021, we expect to see a continued increase in direct and sublease availability, as the pandemic will keep offices closed for at least the first half of this year. Post-pandemic, many office users will integrate remote work practices, better social distancing and healthy building environments into their office plans. On a positive note, office tenants that have shelved their plans for relocations or expansions are now finally in the market forging ahead with some of their decisions. While their ultimate office space configuration may look different than what was planned pre-pandemic, it’s encouraging to see more tenants active in the market taking steps to figuring out their game plans. Let’s take a closer look at four major office submarkets in metropolitan Detroit. Downtown Detroit (CBD…

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Gotown: Detroit’s Industrial Market Looks to Build off Momentum from 2020

Kristin Harlow — Thu, 11 Mar 2021 12:45:46 +0000

By Doug Fura, Farbman Group With 2020 in the rearview mirror, hopes for a healthier and more prosperous 2021 seem likely to lead to economic and development surges in markets across the country. In Detroit, where the industrial market has been a clear bright spot in a pandemic-altered development landscape, industry professionals remain optimistic that development momentum won’t be slowing anytime soon. How realistic is that optimism, where does industrial stand right now and what’s in store for Detroit? No signs of slowing down The Detroit industrial real estate market is easily the tightest I’ve seen at any point in the last 40+ years. We are seeing speculative construction for the first time in over a decade. Even more impressive is the fact that, for the most part, that space is being leased up before the buildings are completed. While construction costs are at record highs, they are still dramatically lower than in many/most other large markets across the country. E-commerce influence Who and what is driving that demand? The 500-pound gorilla is Amazon, but the boom in e-commerce extends well beyond one company, no matter how influential. The market was already evolving prior to the pandemic, but COVID-19 has…

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Hardships Met With Innovation for Detroit’s Retail Market

Kristin Harlow — Thu, 04 Mar 2021 12:45:08 +0000

By Evan Lyons, Encore Real Estate Investment Services Call it what you will — Motown, the Motor City, the Comeback City — by any name, the city of Detroit has long been a place of possibilities. A smart student in the school of hard knocks, Detroit has teetered on failure, yet still managed to graduate with high marks. Best known as the birthplace of the automobile and home to Motown music’s Hitsville USA, Detroit went from being the driver of American capitalism to a city in ruin. It endured population decline in the ’50s, rioting in the ’60s, the collapse of the auto industry in the late ’70s and ’80s, and in 2013, the largest municipal bankruptcy in U.S. history, yet somehow emerged as a hot spot for high rollers and hipsters alike. As 2019 winded down, Detroit and the surrounding Southeast Michigan area boasted a healthy economy. The automotive industry, a key driver of the region, posted better than expected sales of cars and trucks in the fourth quarter of 2019, beating projections. Employment was on the uptick both in the city and across the state. Southeast Michigan appeared positioned for growth in 2020. The same held true for…

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Can America’s Comeback City Get off the Mat Again? Yes — But Uncertainty Reigns

Kristin Harlow — Thu, 13 Aug 2020 11:45:31 +0000

By Garrett Keais In my 25 years in commercial real estate, I’ve never seen the economy — and our industry — come to a standstill the way it did this spring after the coronavirus hit. With so much uncertainty in the market, Detroit’s office sales and leasing activity slowed considerably. But as the last decade has shown us, if ever there was a city that could take a punch and get back up swinging, it’s Detroit. Comeback before the virus Fueled by a strong economy and low unemployment, America’s “Comeback City” was posting first-quarter 2020 office vacancy rates as low as 7 percent in one central submarket, according to Cushman & Wakefield research, and seeing rising property values and rents before the coronavirus hit. It was a striking change from a decade earlier, when the Detroit area was struggling after the Great Recession. Unemployment was 3.7 percent in February 2020, compared with 17.2 percent in June 2010, according to the U.S. Bureau of Labor Statistics. The city’s GDP had climbed steadily over those years. Tech giants like Quicken, Google, Twitter, Microsoft and Amazon moved to the city’s central business district, boosting downtown office occupancy and helping to diversify the local…

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Despite Costs, Developers Pursue Rehab Opportunities for Detroit’s Historic Buildings

Kristin Harlow — Thu, 30 Jul 2020 11:45:08 +0000

By Steven Phillip Siegel Mies van der Rohe. Yamasaki. Kamper. Kahn. Portman. Gyllis. Some of the biggest architects in the world have a presence in Detroit. Motown’s exceptional confluence of architects and designers earned the city a UNESCO City of Design designation, the only city in the United States to receive the UN’s award for design excellence. However, beginning in the early 1970s, many of the city’s finest architectural works slowly sank under a weakening market amid tenant (and residential) flight to the suburbs. In the aftermath of the Great Recession, developers, led by Dan Gilbert’s Bedrock, began slowly redeveloping Detroit’s architectural gems. Historic properties like downtown’s David Stott Building or New Center’s Fisher Building saw massive capital investments in recent years. Yet, many city residents and tenants find it hard to comprehend why rents on these new projects are so much higher than the rest of the market. The narrative of Detroit’s architectural gems — and the financial Jenga it takes to make them succeed — tells the story of the city’s modern-day renaissance. “To us, it’s a passion project,” says Brett Yuhsaz, Bedrock’s director of construction, who has worked on some of the city’s most notable historic rehabs,…

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Manufacturing, Autonomous Technology Drive Detroit’s Industrial Growth

Kristin Harlow — Thu, 27 Feb 2020 12:45:42 +0000

Southeast Michigan has enjoyed a decade of prosperity surrounding the revitalization of downtown Detroit led by billionaire businessman and Quicken Loans Founder Dan Gilbert. Detroit has 580 million square feet of industrial space and is projected to see another 5 million square feet by 2021, much of that distribution-focused. In the past decade, Southeast Michigan has become a hub for driverless car technology. Toyota has announced plans to create an autonomous vehicle research facility in Ann Arbor and Ford Motor Co. has purchased the former Detroit train station to create an autonomous vehicle research center. In addition, the state of Michigan partnered with the University of Michigan to convert an old World War II air base into a 500-acre autonomous vehicle testing ground. The American Center for Mobility at Willow Run located in Ypsilanti Township operates as a global center for testing, research, education and product development, and serves companies such as Microsoft, AT&T, Ford, Toyota and Hyundai. The GM strike has recently been resolved, a relief to smaller automotive suppliers. High costs of construction, due to the international trade war as well as labor shortages, have resulted in limited inventory, therefore increasing the value of existing facilities. Construction, leasing…

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Investors Note Steady Supply, High Demand Within Detroit’s Office Market

Kristin Harlow — Thu, 20 Feb 2020 12:45:57 +0000

While there are plenty of news stories touting Detroit’s comeback, it’s the actual 2019 year-end numbers backing up the claims with solid momentum in the office and lending sectors. And the numbers are capturing the attention of national investors, not to mention lenders who were on the bench for years and years. Office occupancy Office vacancy across metropolitan Detroit decreased from 24.5 percent in 2013 to 13.8 percent as of the fourth quarter of 2019, according to national leasing firm CBRE. Asking rates have climbed since 2009 and vacancy rates have dropped. These figures even include the 23 percent-vacant Southfield submarket and the 19.5 percent-vacant Auburn Hills submarket, which with their combined total square footage account for 23.4 percent of the total metropolitan Detroit office market, dragging up the total average vacancy rate. Focusing on the central business district (CBD), the post-recession predictions of a city powering through the real estate cycle are holding true. The total direct office vacancy in JLL’s latest Detroit CBD Skyline report is 7.7 percent. That figure includes approximately 500,000 vacant square feet in the GM-owned and largely self-occupied Renaissance Center (RenCen) complex. Remove the RenCen from the equation, and the Detroit CBD skyline (i.e.…

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Retailers on the Rise in Grand Rapids Market

Kristin Harlow — Thu, 14 Nov 2019 12:45:21 +0000

It’s no secret that Grand Rapids is one of the fastest growing cities in the United States. Grand Rapids and its surrounding suburbs led much of Michigan’s population growth last year and have been continuously recognized by national surveys. Two studies conducted by WalletHub in late 2018 and early 2019 ranked Grand Rapids in the top 10 percent of cities analyzed as having one of the fastest growing economies and also ranked it in the top 30 percent of markets studied as being one of the best places to find a job. While it’s obvious that this growth in population and availability of jobs has been the key driver behind the increase in new multifamily developments, it has also had a major influence on the retail sector. From national restaurant chains and retailers to new local food and beverage concepts, key performance indicators such as low vacancy rates and increased rental rates are moving in a positive direction for the Grand Rapids commercial retail market. What retail apocalypse? These days, news articles related to retail properties across the nation may lead to a state of depression due to closings of big box and chain stores that have been unable to…

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Why Invest in Grand Rapids: Lifestyle, Job Market and Affordability

Kristin Harlow — Thu, 07 Nov 2019 12:45:36 +0000

While most national investors and developers focus on larger Sun Belt and coastal markets such as Austin, Atlanta, Nashville and Phoenix, Time Equities has had great success investing in Grand Rapids and continues to believe strongly in the future potential of the area. As an opportunistic company, we often go where others do not, looking for markets and assets with strong risk-adjusted returns. Grand Rapids provides such an opportunity. The small city has been ascendant for the past decade and has a bright outlook. Its population and job growth equal many of the fastest-growing markets in the Sun Belt. Its economy is bolstered by large medical and education employers supported by impressive charitable contributions from the region’s wealthy families. In addition, the city also boasts a diversified economy with manufacturing, breweries and white-collar employment. And most importantly, it’s home to a burgeoning young and educated workforce. Grand Rapids’ combination of lifestyle, job market and affordability make it a regional draw. Grand Rapids experienced population growth of 41 percent from 2010 to 2017, compared with 22 percent for the Nashville metro area and 19 percent for the Dallas metro area. This growth was aided by a net migration of 31,285 people.…

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Occupancy, Rental Rates Are on the Rise in Detroit’s CBD Office Market

Kristin Harlow — Thu, 11 Jul 2019 11:45:54 +0000

Given the pace at which the Detroit commercial office space market is evolving, updates and projections are changing with extraordinary speed. The market can look very different in just a few short months, and it’s worth checking in to see where things stand relative to the beginning of the year. CBD occupancy is high While growth remains the headline story, the focus has changed somewhat from a high level of leasing activity across the metro area to more of adaptation and evolution as landlords, tenants and brokers all adapt to a downtown market that is reaching capacity. The vacancy rate in Detroit proper is the lowest it has ever been, and office space in Midtown and downtown is getting harder and harder to come by. Deals are still being executed across metro Detroit, but with rents continuing to rise and space at a premium, the incentives landscape looks nothing like it has in recent years. Parking rates have increased dramatically with a major shortage in parking in the central business district (CBD). The monthly cost of parking has increased to approximately $250 per space downtown. Creative solutions Incentives continue and have produced new opportunity for creativity, as owners and operators…

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