Detroit Office Warms Up for the Summer

Metro Detroit saw some encouraging trends through the end of the second quarter. The overall market saw the vacancy rate decrease by sixty basis points, and reported 1,162,532 SF of positive net absorption. While vacancy and absorption moved in a positive direction, across the market, rent growth was minimal.

Downtown Detroit continues to be the exciting story in Southeast Michigan. Vacancy rates in Class A buildings are at a minimum, and for many legacy tenants that signed leases five to ten years ago, the current renewal terms are accompanied with a massive case of sticker shock. Time will tell if tenants elect to relocate from the CBD altogether, or seek out space in nearby Class B buildings. Current trends point to the latter as the more common scenario.

Into the third quarter, expect the current trends to remain in place. Service firms and the automotive industry continue to have an appetite for more space, bringing occupancy rates up. At the same time, the overall amount of vacant space will keep rent growth at a minimum, with the exception of a handful of top-shelf buildings. As the market continues to improve and as cap rates continue to compress in top-tier markets, expect to see more out-of-town capital purchasing buildings in Michigan.