A Tale of Two Cities (or Markets)!!!

Since the beginning of 2011, we have seen the industrial markets in Detroit enjoy increased activity as a result of the rebounding automotive industry. According to Costar, Net absorption for the overall Detroit Industrial market was positive 2,140,669 square feet in the third quarter 2011. This is in addition to 2,410,576 square feet in the second quarter 2011, and 2,279,781 square feet in the first quarter 2011. This activity is in stark contrast in what we have seen in recent years when we saw successive quarters of negative absorption. Most of the positive absorption is a result of the leasing/purchase of newer (less than 25 years old) buildings that are located in desirable locations (i.e. Auburn Hills, Plymouth, Canton, Shelby Twp. etc…).

In contrast to the industrial markets, the office markets have seen a mere 199,424 square feet in third quarter and 777,435 in second quarter. Much of this is a result of Quicken Loans taking additional space in Downtown Detroit tempered with the vacating of Borders Group of their headquarters consisting of 330,322 s.f. in Ann Arbor. We are seeing a few larger lease transactions such as Trinity Health’s leasing of 340,000 s.f. at Victor Center in Livonia, JD Powers leasing of 56,449 square feet at Troy Office Center; these transactions are a result of either consolidations or a tenant relocating at the expense of another building.

Since the beginning of 2011 we have seen Quicken Loans acquire several buildings in Detroit’s Central Business District; this along with Blue Cross Blue Shield’s relocation to the Renaissance Center has created an excitement in the City of Detroit that we have not seen in decades. In addition to this excitement, we are starting to see some speculation by real estate investors as they are betting on continued growth and demand as Quicken continues to expand and hopefully attracts more businesses to relocate to Downtown. This excitement and speculation is in stark contrast to the suburbs where we are still seeing major office buildings channel through the foreclosure process and vacancy rates that still have an overall rate of 18.6% and rents at levels far below historic levels.

We expect the disparity in activity between the office and industrial markets to lessen as the pent up demand from automotive suppliers is satisfied and the automotive growth from the rebound levels out. We hope to see the excitement in the City of Detroit continue as we all agree that a stronger Detroit makes a stronger region. In the meantime we have A TALE OF TWO CITIES (OR MARKETS).

Regards

Matthew B. Fenster, CCIM, MCR

[email protected]