As downtown Detroit rebounds, suburbs look to keep their edge
A month after L. Brooks Patterson said he'd rather "join the Klan" than a new group he claimed was luring businesses from the suburbs to Detroit, the Oakland County executive is softening his stance.
He told The Detroit News he will send representatives to a meeting that the group of corporate leaders — headed by DTE Energy Co. CEO Gerry Anderson — will hold Tuesday in Macomb County. Patterson said he wants to “investigate” what they are planning, and did not rule out joining.
The friction between the county executive and the group of Metro Detroit CEOs comes at a time when businesses — which decades ago began fleeing Detroit for the suburbs — increasingly are reversing that migration.
Companies including Accenture, Ford Motor Co., Google, Microsoft and Tata Technologies are moving or expanding their operations to the city as they seek to connect with other innovators and compete for young talent. Meanwhile, surrounding communities are looking at how they can stay competitive against the suddenly trendy downtown.
“It’s always about who is building the best mousetrap,” said Brendan George, senior vice president of commercial real estate services firm CBRE Group in Detroit. “It’s basically fair competition. It doesn’t matter what a suburban landlord is offering them, many are going to make that move.”
The informal, unnamed group of CEOs that drew the ire of Patterson meets quarterly at DTE headquarters in Detroit to identify areas it can affect with funding and leadership: transit, job training, public place-making and economic development across southeast Michigan.
It has been in talks with Detroit Regional Chamber CEO Sandy Baruah to develop a private-sector entity that would expand the region's business-attraction efforts.
Baruah contacted DTE’s Anderson more than two years ago to work on enhancing the 11-county region’s approach to business attraction and marketing to out-of-state and international companies in ways similar to Grand Rapids; Columbus, Ohio; and Minnesota's Twin Cities. It plans to become a standalone entity later this year.
“We’ve been clear this is meant to build regional integration,” Anderson said in a recent interview. “We want to focus on a mindset that when anywhere in the region wins, the entire region wins and that we should all be in this together. If Oakland County has a win, we should celebrate it. If Detroit has a win, we should celebrate it. If Washtenaw has a win, we should celebrate it, because it’s all good for the market.”
Patterson has apologized for his "join the Klan" remark. “I was trying to make a point, and I suppose I did,” he said. “They say, ‘We’ll take over development for southeast Michigan.’ I’ve done a damn good job, and I’m not going to give it over to 23 CEOs from Detroit."
Oakland County has shared in the benefits of the Detroit area's resurgence, including about $8 billion in investment since 2014. So far this year, that amount is $273 million. Recently, that includes two projects from Japan, two from China and one from India.
“I fight for every company that we have,” Patterson said. “Every inch that we have, they were hard-fought battles. I don’t want to lose them. We’re very competitive.”
Baruah said the regional chamber does not play a role in businesses moving between communities in the region, leaving that up to local chambers of commerce. Still, he said Detroit is benefiting disproportionately in the region’s growth and is the “hottest” city in the country, garnering national and worldwide attention.
“It has to do with the health of tech and automotive industries, the reputation that the state now has, the Snyder administration providing much more stable budgeting,” Baruah said. “The renaissance in the city of Detroit is a remarkable turnaround story, and businesses want to be a part of that.”
Reversal of trends
Although historically the city’s downtown has maintained higher office vacancy rates compared to the metropolitan office market, that trend began changing after the Great Recession when those rates evened out.
Since 2010, according to CBRE, downtown office space absorption has remained positive, and vacancy and availability rates have declined. Downtown Detroit’s vacancy was 12.8 percent on 16.8 million square feet in this year’s second quarter, down from 17.2 percent and 29.2 percent in the fourth quarters of 2000 and 2009 respectively. In Metro Detroit, vacancy was 15.7 percent on 79.2 million square feet compared to 7.9 percent in 2000 and 29.4 percent in 2009.
The flip in trend is true for leasing prices, too. Downtown’s average asking rent rose from $17.96 per square foot in 2000 to $18.30 in 2009 to $21.72 now. In the suburbs, average asking rent fell from $21.21 per square foot in 2000 to $18.07 in 2009 and now is at $18.36.
This turning point in 2010 coincided with Quicken Loans’ move from Livonia to Detroit, one of the early examples of a reverse in the 30-year trend of investment fleeing the city.
“I think this shows the demand was there for the downtown environment,” CBRE's George said. “But it wasn’t until the Gilbert and Ilitch organizations started renovating buildings and getting them on par in terms of the quality did tenants feel comfortable with making that commitment.”
Harrison West, a senior research analyst for investment management company Jones Lang LaSalle in Royal Oak, said that especially in the technology sector, urban settings appeal to the young talent these companies are recruiting. With U.S. unemployment at 3.9 percent, businesses are making decisions based on recruiting new talent as baby boomers retire.
As a result, George said, many are looking at Detroit or “urban-suburban” areas such as Birmingham, Ferndale and Royal Oak that have hip, walkable communities with a thriving nightlife.
Accenture plc, an Ireland-based global management consulting and professional services firm, is returning to Detroit in November after leaving for Southfield in the late 1990s. Its new space is at 1001 Woodward near Campus Martius Park. Dan Garrison, Accenture’s office managing director in Detroit, said moving downtown would demonstrate the company’s commitment to the city and would place Accenture closer to many of its automotive sector clients and the city’s innovative ecosystem. He said it was downtown’s energy that inspired the move.
“We’re going to be shoulder-to-shoulder with those start-ups,” Garrison said. “There’s so much innovation and talent in downtown. We saw this an opportunity to take that talent and bring it into Accenture.”
Accenture also invested in the suburbs. To support its new downtown location, it opened in June an innovation hub in Livonia, Garrison said, that is close enough to support its clients and has the space to develop and test new technologies.
Tata Technologies has a similar story. With its Novi lease expiration approaching, the India-based company worked with the Michigan Economic Development Corp., the Detroit Economic Growth Corp. and the City of Detroit to find a new location on the sixth floor of 601 Cass. It plans to move next June. Sonal Ramrakhiani, chief operating officer, said the company looked at more than 50 properties across Metro Detroit. Tata found Detroit’s network of startups, mobility and technology companies as well as Wayne State University attractive. Recruitment was a factor.
“Students we are looking to recruit think it’s an exciting place to be,” Ramrakhiani said. “All of my employees are saying they are excited to be in Detroit.”
She said Detroit does have its disadvantages, including high parking and tax rates. Rental prices, she said, were comparable to others Tata was evaluating, making the move feasible.
Changing to compete
Southfield Town Center is one suburban office complex that's tried to reposition itself. Under new ownership since 2014, the 2.2 million-square-foot, four-tower center has received more than $55 million in updates, said Clarence Gleeson, senior vice president of Transwestern's office leasing group for the town center.
Much of the money has gone toward replacing old fixtures, but it also has redone entrances, new shared conference rooms and casual meeting spaces. It's expanded Wi-Fi throughout the building, created a new outdoor event space and a tenant lounge in a former Bank of America location that opened last week with foosball, ping pong and pool tables.
Southfield Town Center also is redoing its café to provide expanded breakfast and lunch options and is adding a sports bar in its garden atrium with service from a “high-end, gourmet restaurateur in southeast Michigan.” It also plans to expand its fitness center and offer a reduced cost of $100 per year for tenants' use. It's considering whether to replace its closed theater with a basketball court, golf simulator, gaming area and batting cage.
The office complex is competing with downtown Detroit for prime tenants. It’s lost a few, including Fifth Third Bank of Eastern Michigan and Microsoft. It also has won some, including nearly 400 employees from Blue Cross Blue Shield of Michigan’s Medicare Advantage consulting business line Tessellate, the headquarters for former Detroit Piston Vinnie Johnson’s furniture company AIREA Inc. and a few law firms. Additionally, companies from Grand Rapids and out of state have set up shop.
“It’s healthy competition,” Gleeson said. “It’s been the same forever. To have a successful region, you need to have a strong city and new companies coming into the region."
As investment goes into the suburbs, even offices that may not be competing as much with downtown are expanding their offerings to retain and attract tenants. Southfield-based Hayman Co. took over the Troy OffiCentre in June 2017. By the end of the year, Andrew Hayman, the company's president, expects to have invested $10 million into the five-building site, rebranded as the PentaCentre, to update the aesthetics, building’s mechanics and cafeteria; hire a new food service provider and add a new fitness center and other amenities. Over the new few years, Hayman said rents slowly will increase to $17.95-$20 per square foot.
“People still want to drive and not have a problem parking,” Hayman said. “Everything appears to be trending downtown, and it’s all good, and we’re rooting for it. There’s still an established market in Troy, and it’s not significantly impacted negatively at this time.”