Avison Young in Detroit
As the hub for the resurgent automotive industry, the market is replete with major global companies serving the sector. Healthcare and technology companies have also built a strong base in the region, attracted by the area’s workforce, higher-education infrastructure and lower cost structure. Downtown Detroit, including the Midtown and New Center submarkets, remains the topic of conversation throughout southeastern Michigan. Businesses and residents continue to migrate from the suburbs to downtown adding momentum to the live-work-play metro area. Two major developments that are leading the overall revitalization are the Little Caesars Arena and Woodward Avenue M-1 Rail, both delivering in 2017.
Detroit is the largest city in the state of Michigan, the eleventh-largest city in the U.S. and part of the eighth-largest metropolitan area. The Metropolitan Detroit Area has a population of 4 million (Wayne, Oakland and Macomb counties). In addition to the automotive industry, healthcare and technology companies have built a strong base in the region.
Detroit’s office vacancy rate decreased to 14.5% in the third quarter of 2016, down from 16% at year-end 2015. Detroit is still a heavily suburban market with 90% of absorption in 2016 happening outside of downtown. The tech industry continued to bet big on Detroit in the past year with names such as Microsoft, Google, Amazon, Lyft and Uber adding locations in the metro area. Metro Detroit is heavily reliant on the automotive industry to spur innovation in manufacturing and technology. As the industry moves towards autonomous vehicles, Metro Detroit will serve as a hub for a transient and highly skilled technology workforce.
The excitement of Detroit’s turnaround continued its momentum throughout 2016 as national retailers, including Nike, Under Armour, Kit and Ace, Warby Parker, Shake Shack and Bonobos all made long-term commitments to flagship retail locations in the downtown market. The suburban market has more than 225,000 square feet of new inventory slated for completion in 2017 where rents have been steadily rising to meet new construction pricing.
Metro Detroit’s market for industrial and flex space registered considerable improvement as the vacancy rate dropped to 5.6% in the third quarter of 2016 from 6.6% at year-end 2015. In terms of development, the industrial market will slow significantly in 2017. Approximately 850,000 square feet is underway with 86% preleased. Challenges facing the industrial market are related to a plateau in automotive industry demand. However, the industrial market remains healthy with small speculative development underway in suburbs surrounding Detroit, notably Wixom and Plymouth.
Continued investment in Detroit will be the major business driver affecting the market in 2017. Notable sales in 2016 included local investment firm REDICO acquiring 150 W. Jefferson for approximately $90 million, or $190 psf. For outside investors, this price tag adds to confidence in downtown Detroit’s revitalization. In 2017, larger transactions are expected from legacy Detroit owners that are beginning to bow out of the market.