that up until now development has been
concentrated in the suburbs, with 255,000 sf
of new supply in the pipeline.
Despite an increase in overall vacancy
during the fourth quarter to 18.1% and negative absorption of 192,146 sf, CBRE has a
positive outlook for the suburban office sector, with the anticipation of rent increases.
At the close of last year, rents rose from
$16.84 to $16.95 per sf.
The addition of 1, 100 new jobs, a high
number of residential foreclosures and limited new supply coming on line, makes
apartments a good bet, Marcus & Millichap
notes. Developers are expected to build
roughly 275 units in 2008, down from 430
apartments last year, the firm states.
Vacancy could fall 20 basis points to 5.2%
by the end of 2008. All of these factors will
likely push up rents 2.9% to $737 this year.
The industrial market, meanwhile, has
seen a spate of construction activity.
According to CBRE, 795,130 sf of industrial space was under construction during
the fourth quarter with three buildings
totaling 745,000 sf reaching competion.
Demand is driving additional development
in the sector.
“The growth in the manufacturing sector
and the desire for more modern industrial
product has spurred new speculative development,” Nosal says. “By mid-2008, more
than one million sf of much-needed product
will be available.”
Despite all this construction, vacancy
rates dropped 43 basis points to 6% in Q4
and absorption totaled nearly two million
sf, bringing the year-to-date total to more
than 3. 6 million sf. Asking rents have
been driven up to $4.79 per sf by the end
of the fourth quarter, a significant jump
from $4.50 at the end of 2006, CBRE
notes.—Jennifer McCandless
Detroit
DETROIT’S COMMERCIAL REAL ESTATE
market remains inexorably tied to the
auto industry. For that reason, many
local observers say the recent completion of labor negotiations with the
UAW and other changes in the car business could bode well for the marketplace in the long run.
“As we look ahead through 2008,
Detroit’s automotive industry finds
itself in the position of having completed a painful and difficult restructuring process. This, combined with
groundbreaking union contracts and a
competitive product group, has placed
the industry in a position to hold or
grow their market share while producing robust profits again,” says Rob
Bagguley, president of the Midwest
region for Transwestern/Delta
Associates. “In this closely tied economy, the benefits for Metro Detroit real
estate are obvious.”
However, reminds Bagguley, these
shifts have come at the same time the
national economy has begun to falter.
“The result of this will mean Metro
Detroit’s landlords will continue to battle for their share of tenants and occupancy, with some less capitalized owners fighting to hold onto their
properties,” he says.
The situation has not been made any
easier by a spate of corporate consolidations and a lack of incoming tenants
from other markets, remarks CB
Richard Ellis in its Q4 report.
Currently, the vacancy stands at 25.3%,
and for all of 2007, net absorption was a
puny 5,000 sf.
Hardest hit was the suburban Troy
submarket, which has witnessed either
an exodus of firms or consolidations
among its tenants. Consequently, the
market amassed 470,000 sf of negative
absorption in ’07 and sported a 28.6%
vacancy rate as the year ended.
Downtown Detroit did manage to
snag some major tenants, with Quicken
Loans revealing its plans to move more
than 400 employees from Livonia to the
city over the next three to four years.
But a report from NAI Farbman points
out that re-absorption at One Detroit
Center will “be the true test of the
CBD’s desirability in 2008.”
Newmark Knight Frank measured a
17% overall office vacancy rate in
Detroit when 2007 ended, slightly
above the previous year. With a dip in
employment last year and a construction pipeline that consists of one million
sf, Newmark does not expect any
improvement in the vacancy rate or a
spike in demand.
The suburban office market, meanwhile, saw a slight uptick in occupancy,
according to Transwestern/Delta
Associates. Between Q4 ’06 and Q4 ’07,
the vacancy rate fell from 19.3% to
19.1%. Bagguley says that with virtually
no new construction, the market should
bounce back when the national economy recovers and auto industry profits
grow. Further aiding occupancy is the
growth of foreign automotive engineering facilities operated by Toyota and
Hyundai and expansion by other businesses such as life sciences and alternative energy, which are taking advantage
of the area’s engineering talent and
R&D resources for non-automotive
work, he says.
Fred Liesveld, EVP and managing
director at Grubb & Ellis, reveals that a
significant supply of available industrial
space allows tenants to shop around and
secure favorable lease rates. “The slow
pace of economic improvement will
certainly pose a challenge in the coming
quarters for landlords seeking to
increase rates,” he states. Grubb & Ellis
registered an industrial vacancy rate of
around 14% when Q4 closed, while
CBRE recorded 12.1%.
As for the multifamily market, NAI
Farbman says that national headlines
about Michigan and Detroit are
overblown. Would-be apartment buyers
are being cautious, therefore, more
renters are staying in place, pushing up
occupancies in quality developments.
With few new units coming on the market, this trend should continue. However,
with the housing slump, many sellers are
becoming part-time landlords, thus
putting pressure on class A rents. “Expect
limited rent growth and rising occupancy
throughout 2008,” the firm asserts.
According to Marcus & Millichap, a
mere 500 units are slated for delivery in
2008, a 0.2% addition to the rental
inventory. Moreover, the number of
obsolete units removed from the stock
may exceed new construction. With a
slight upturn in demand, the vacancy
rate will decline 10 basis points to 6.8%
this year. Asking and effective rents are
both forecast to grow 0.8%, finishing the
year at $838 and $772, respectively, per
month.—Maria Wood
