Since 2010 more than 4.8 million square feet of office space has been absorbed by local companies growing operations and expanding footprints. Office demand growth has favored downtown, but has not been limited to it.
1. Jobs growth tapered in 2014 but remained in positive territory
Jobs growth within the office-using employment sectors subsided somewhat in
2014. Still, these sectors did record incremental expansion which will translate
into moderately increased office demand over the coming year. According to the
most recent estimates from the BLS, total non-farm employment in Detroit stood
at ~1.9 million payrolls, representing an annualized increase of 41,600 jobs or
2.2 percent. Meanwhile, unemployment decreased 3.2 percentage points year-
over-year to 6.3 percent. Office-using employment sectors recorded an
annualized net gain of 12,500 jobs. Gains were led by the professional and
business services sector, which added 12,100 jobs year-over-year.
Office employment trends (12-month change)
Source: JLL Research
Office demand is compressing vacancy rates across most submarkets
Total vacancy in Detroit was 24.4 percent at the end of the first quarter, second
highest in the country (New Jersey took the top spot at 25.3 percent). Yet,
substantial absorption gains over the last four years have reduced the rate from
a high water mark of 32.9 percent in 2010. Since that time, more than 4.8 million
square feet of office space has been absorbed by local companies growing
operations and expanding footprints. Office demand growth has favored
downtown, but has not been limited to it. As a result, vacancy rates are
compressing across most submarkets and are forecasted to continue to
decrease over the coming year as the region records further demand growth.
Office vacancies
Source: JLL Research
Landlords slowly begin to push rents as market fundamentals tighten
Detroit’s average asking rent recorded year-over-year declines for much of the
last decade, a product of the region's elevated vacancy rate and negotiating
leverage resting firmly with tenants. However, with significant demand gains in
recent years and steadily decreasing vacancy rates, landlords have begun to
push rents. Class A asking rents averaged $22.95 per square foot at the end of
the first quarter, up $0.65 or 2.9 percent year-over-year while Class B asking
rents averaged $16.98 per square foot, up $0.24 or 1.5 percent year-over-year.
Further rent increases are forecasted over the coming year, particularly
downtown and in other key submarkets when demand is concentrated.
Asking rents
Source: JLL Research
24.4%
Total vacancy
557,459
Q1 2015 net absorption (s.f.)
1.6%
12-month rent growth
273,000
Total under construction (s.f.)
93%
Total preleased
Office Insight
Detroit | Q1 2015
Further vacancy compression, rising rents
(20.0)
(5.0)
10.0
25.0
2011 2012 2013 2014 Q1 2015
Financial Activities Professional & Business Services Information Government
15.0%
21.0%
27.0%
33.0%
2011 2012 2013 2014 Q1 2015
Suburban CBD
$15.50
$18.50
$21.50
$24.50
2011 2012 2013 2014 Q1 2015
Class A Class B