Downtown office vacancy rises after 7 years
Downtown Detroit saw its office vacancy rate increase for the first time in nearly seven years, according to a recent analysis.
Despite decreases in available office space across Metro Detroit during the final quarter of 2018, the central business district saw its vacancy rate increase approximately 1.8 percentage points to 12.3 percent, according to real estate advisory firm Newmark Knight Frank. The loss of a major lease accounted for the largest portion of that, but the district still is positioned for growth, said John DeGroot, vice president of research at the firm's Detroit office.
"Basically it was just a one-quarter blip," DeGroot said. "In 2019, we expect nothing but positive absorption going forward."
Molina Healthcare moved from 41,000 square feet at 615 W. Lafayette Blvd. to consolidate its employees at its Troy location. It was the second significant loss for downtown after Adient plc withdrew its plans to relocate from Plymouth and spend $100 million to renovate the Marquette Building.
But companies such as LinkedIn, advertising agency Universal McCann and tax firm RSM US LLP have said they are hiring and expanding their footprints in Detroit this year. Chemical Bank is planning to start construction on its new 20-story, 250,000-square-foot headquarters at Woodward Avenue and Elizabeth Street this summer. That $60 million project is just a portion of the $1 billion in new developments underway.
"And as Ford (Motor Co.) develops its railroad campus (in Corktown), you're going to see a spinoff of more demand for that," DeGroot said. "Vacancy is still pretty low, and demand is still pretty high."
In Metro Detroit overall, office vacancy fell from 15.5 percent to 15.3 percent during the fourth quarter as 353,000 square feet of space was absorbed. The market saw more than 1.7 million square feet of absorption last year, up from 1 million square feet in 2017.
Despite the increase, a slight uptick in sublease space, especially in the suburban market, could be an indicator of a weakening in the service sector, DeGroot said. Leasing velocities for outskirt communities such as Livonia and Novi also continued to flatline as they have over the past year and a half.
"Everything is kind of at a plateau," DeGroot said. "Demand is being centralized in the central core metro area."