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 delivered this past year and helped the overall revitalization of the city are the 234,000 square foot Little Caesars World Headquarters and Shinola Hotel, which added 130 rooms to Detroit’s luxury hotel market. 2019 included ground breakings for the 20-story TCF headquarters building at Woodward Ave and Elizabeth St and two large scale mixed-use developments, including the Hudson Site and Monroe Blocks, both delivering in 2024 totaling 1.8 million square feet (msf).
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 2019 office vacancy rates decreased to 8.9%, from 9.8% at end of year 2018. Detroit is still a heavy suburban market, with 83% of absorption happening outside of downtown in 2019. In response to the declining vacancy and positive absorption, the average asking lease rate for existing Class A increased $2 psf year-over-year to $26.50 psf. In 2020, expect absorption and vacancy rates to continue in a positive direction while lease rates rise. A notable lease transaction that occurred this past year was WeWork signing a lease for 91,000 sf at 6001 Cass in New Center. The tech industry continues to grow in Detroit with LinkedIn, Google and Microsoft committing to leases in the downtown market. Earlier this year, Google relocated from the suburbs to District Detroit at 35,000 sf and has plans to double in size over the next year. After 30 years in Southfield, Microsoft relocated its regional tech center to downtown with 40,000 sf and 200 plus employees, with plans to expand. Metro Detroit is 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 retail turnaround continued its momentum throughout 2019 as Plum Market, Shinola and H&M all made long-term commitments to flagship retail locations in the downtown market. Retail remains an important topic in downtown Detroit as the city is continuing its efforts of becoming a true live-work-play city.
Downtown Detroit reported a 92.5% occupancy rate at the end of Q2 2019. Average asking rents for new product in the CBD and Midtown have exceeded $2.40 psf. New upscale product such as The Stott and Vinton Building, both redeveloped by Bedrock Real Estate, have surpassed $3.20 psf. The recent multifamily development activity is due to increased occupancy and rising rental rates. At the end of Q1 2019, 12 multifamily projects accounting for roughly 2,400 units were under construction. Approaching the end of the year, the market is beginning to see rental rates even out as a large quantity of units deliver. The largest multifamily announcement in 2019 was The Mid, a mixed-use project that is set to break ground this year and add 740 multifamily apartments to the market.