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Office Outlook Detroit | Q4 2015
| Date post: | 21-Jan-2017 |
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Real Estate |
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Office Outlook
Detroit | Q4 2015
Historical office cap rates
Source: JLL Research
Attracting the high-tech sector
Source: JLL Research
Average office asking rents
Source: JLL Research
Detroit, attracting outside money and technology
2,257
Office Insight
Detroit | Q4 2015
61,651,347 Total inventory (s.f.)
157,919 Q4 2015 net absorption (s.f.)
$18.41 Direct average asking rent
432,480 Total under construction (s.f.)
19.0% Total vacancy
872,323 YTD net absorption (s.f.)
4.6% 12-month rent growth
93.8% Total preleased
Out of bankruptcy, Detroit is coming back strong
A little over a year ago people were counting Detroit out. It was on the verge of
entering bankruptcy, which it eventually did. Fast forward to a year later and
Detroit is emerging from its bankruptcy financially stronger than it was. The city
is improving services, enjoying a construction boom, and just gave the police
force a raise. As a result, the real estate market is seeing a boost. Comparatively
high rates of return on real estate investments continues to attract investors to
the region in search of deals. Using capitalization rates to measure returns,
investors are opting for Detroit’s best investment-grade office properties in prime
locations with capitalization rates between 7 to 8.5 percent.
Detroit welcomes new technology
While reading news articles concerning Detroit and technology one has to ask
themselves, when was Detroit ever not tech oriented? The automobile is one of
the greatest technological advances of mankind. Detroit has always brought
together the heavyweight sectors of transportation, information, and energy. Now
the region is leading in creating ubiquitous connectivity, shared-economy willing-
ness, and energy options for the 21st century. Ford recently announced its joint
venture with Google to launch self-driving cars. Count on more infrastructure
investments such as RocketFiber to turn Detroit into an elite category in which
technology companies naturally and quickly emerge inside its borders.
Detroit’s suburbs still have advantages over the CBD
With initiatives such as Move Across Troy, which aims to improve pedestrian
access between office buildings and businesses in nearby strip malls, suburban
submarkets such as Troy and Southfield have shown a willingness to adapt in
order to compete for credit worthy tenants. It is hard not to be influenced by all
the excitement downtown, but there are attributes about the CBD that either
make sense for your company or do not. Contrary to the urban core, the suburbs
offer readily available parking, discounted rental rates and shorter commute
times. Large tech-oriented tenants will need to closely examine the benefits of an
urban vs. suburban address before making their next real estate decision.
6.0%
8.5%
11.0%
2015201420132012
$15.00
$17.50
$20.00
2012 2013 2014 2015
CBD Southfield Troy
Supply
61,651,347 total inventory (s.f.)
22.8%
total vacancy Share of U.S funding
Employee cost
$84,101 average wage 2014
3.2%
annual wage growth 2014
Talent pool
28.1% % of population with bachelor’s or higher
18.8%
share of millennials (work age, 20-34)
Venture capital
$4.6M total funding Q314-Q215
0.0%
JLL | Detroit | Office Outlook | Q4 2015
Current conditions – submarket Historical leasing activity (s.f.)
Source: JLL Research Source: JLL Research
Total net absorption (s.f.)
Source: JLL Research
Total vacancy rate (%)
Source: JLL Research
Direct average asking rent ($ p.s.f.)
Source: JLL Research
-1,247,120 -1,304,860
-476,545
-1,953,820 -1,767,490
1,277,568 1,510,536
176,382
1,288,053 872,323
-2,500,000
-1,000,000
500,000
2,000,000
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
$21.05 $20.75
$19.73 $19.31
$19.10
$18.56 $18.15
$17.76 $17.99
$18.41
$17.00
$18.50
$20.00
$21.50
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
23.7%
25.9% 26.7%
30.0%
32.9%
30.8%
28.3% 28.0%
25.3%
19.0% 15.0%
25.0%
35.0%
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Northern I-275,
Washtenaw Land
lord
leve
rage
Tenant leverage
Peaking
market
Falling
market
Bottoming
market Rising
market
CBD
Downriver,
Dearborn
5,000,000 5,000,000 5,300,000 5,100,000
3,300,000
0
2,000,000
4,000,000
6,000,000
2011 2012 2013 2014 2015Southfield, Macomb
Farmington Hills
Royal Oak
Southern I-275
North Oakland
Birmingham
New Center
JLL | Detroit | Office Outlook | Q4 2015
Office leasing activity
Detroit | Q4 2015
This report analyzes all closed office leases > 5,000 s.f.
Leasing activity by size
145,864
8
1,314,057
57
.
80,465
65,399
74.0
Growing Shrinking Stable
5,093
0
0
73,706
0
0
Top lease transactions during the quarter
Size Footprint Term (mos)
60,000 Growing 120
20,465 Growing 60
20,373 Growing NA
12,777 Growing NA
12,777 Growing NA
7,314 Growing NA
7,065 Shrinking 42
5,093 Stable NAVision Information Logistics LLC 340 E Big Beaver Road Troy Direct
Buttonwood Financial 31731 Northwestern Highway Farmington Hills Direct
EDMC 28125 Cabot Drive Northern I-275 Corridor Sublease
Arrow Strategies 27777 Franklin Road Southfield Direct
M&O Marketiong 27777 Franklin Road Southfield Direct
Direct
150 W Jefferson CBDAmazon
Fidelis Securecare
Type
1 Village Center Drive Southern I-275 DirectVisteon
Tenant Address Submarket
Direct
800 Tower Drive Troy
At a glance
Total s.f. leased QTD
Total transactions QTD
Total s.f. leased YTD
Tenant footprint
6 1 1
Total transactions YTD
Leasing activity by transaction type
Leasing activity by submarketLeasing activity by industry
Total Class A s.f. leased
Expansion in market
Expansion in building
Renewal
Extension (< 36-month term)
Relocation within market
New to market
Average term (mos)
Total Class B s.f. leased
- - 1 - 7 -
20,000
40,000
60,000
80,000
100,000
100,000+ 75,000-99,999 50,000-74,999 30,000-49,999 5,000-29,999
Total leased Number of leases
CBD Farmington Hills
Northern I-275 Corridor Southern I-275
Southfield Troy
12.50%
12.50%
25%
12.50%25%
12.50%
-
200,000
400,000
600,000
800,000
Q1 2015 Q2 2015 Q3 2015 Q4 2015
Historical leasing activity
Education
Healthcare
Other professional and business services
Automotive
Ecommerce retail
Banking and financial services
12.50%12.50%
12.50%
12.50%
12.50%
37.50%
Office statistics
Detroit | Q4 2015
JLL | Detroit | Office Outlook | Q4 2015
ClassInventory
(s.f.)
Total net
absorption
(s.f.)
YTD total net
absorption
(s.f.)
YTD total net
absorption (%
of stock)
Direct
vacancy (%)
Total vacancy
(%)
Average
direct asking
rent ($ p.s.f.)
YTD
completions
(s.f.)
Under
construction
(s.f.)
CBD Totals 12,843,492 92,389 131,784 1.0% 13.6% 13.7% $20.64 0 0
New Center Totals 1,117,100 0 -16,371 -1.5% 21.3% 21.6% $18.54 0 30,000
Urban Totals 13,960,592 92,389 115,413 0.8% 14.2% 14.3% $20.39 0 30,000
Birmingham/Bloomfield Totals 2,858,942 4,850 18,617 0.7% 8.3% 8.7% $24.41 0 0
Dearborn Totals 2,547,516 8,171 38,119 1.5% 43.1% 43.1% $15.15 0 0
Downriver Totals 404,475 -135 -135 0.0% 42.0% 42.0% $12.65 0 0
Farmington/Farmington Hills Totals 4,178,825 23,954 82,302 2.0% 24.6% 24.7% $17.75 0 0
Macomb Totals 945,140 4,626 176,571 18.7% 9.0% 9.0% $17.50 0 0
Northern I-275 Corridor Totals 3,621,671 27,338 22,385 0.6% 10.0% 10.5% $19.54 0 329,480
North Oakland Totals 2,375,789 3,748 43,572 1.8% 16.5% 7.5% $18.23 0 0
Royal Oak/Southeast Oakland Totals 638,607 833 -28,611 -4.5% 9.9% 9.9% $14.16 0 0
Southern I-275 Corridor Totals 1,129,017 161,168 161,168 14.3% 0.0% 0.0% $0.00 0 0
Southfield Totals 12,990,669 96,020 345,554 2.7% 25.9% 26.1% $17.56 0 0
Troy Totals 10,470,696 -57,840 29,713 0.3% 24.8% 25.0% $18.42 0 0
Washtenaw Totals 5,529,408 -207,203 -132,345 -2.4% 6.8% 8.7% $25.78 0 73,000
Suburbs Totals 47,690,755 65,530 756,910 1.6% 20.5% 20.4% $18.01 0 402,480
Detroit Totals 61,651,347 157,919 872,323 1.4% 19.1% 19.0% $18.41 0 432,480
CBD A 6,194,714 45,182 -7,482 -0.1% 12.7% 13.0% $22.47 0 0
Urban A 6,194,714 45,182 -7,482 -0.1% 12.7% 13.0% $22.47 0 0
Birmingham/Bloomfield A 1,413,082 -5,400 12,965 0.9% 7.5% 7.5% $28.43 0 0
Dearborn A 446,890 0 0 0.0% 11.3% 11.3% $25.00 0 0
Farmington/Farmington Hills A 618,109 25,624 74,156 12.0% 6.9% 6.9% $22.50 0 0
Macomb A 295,494 0 32,887 11.1% 2.1% 2.1% $18.94 0 0
Northern I-275 Corridor A 1,059,039 0 -14,348 -1.4% 3.8% 3.8% $22.37 0 329,480
North Oakland A 433,137 9,879 5,419 1.3% 40.9% 40.9% $21.34 0 0
Southern I-275 Corridor A 950,857 161,168 161,168 16.9% 0.0% 0.0% NA 0 0
Southfield A 2,970,217 79,118 -17,016 -0.6% 18.3% 18.5% $22.94 0 0
Troy A 1,924,131 57,148 22,355 1.2% 17.5% 18.0% $25.06 0 0
Washtenaw A 3,220,406 -220,524 -220,005 -6.8% 8.9% 12.0% $25.84 0 73,000
Suburbs A 13,331,362 107,013 57,581 0.4% 11.9% 12.8% $24.12 0 402,480
Detroit A 19,526,076 152,195 50,099 0.3% 12.2% 12.9% $23.57 0 402,480
CBD B 6,648,778 47,207 139,266 2.1% 14.3% 14.3% $19.12 0 0
New Center B 1,117,100 0 -16,371 -1.5% 21.3% 21.6% $18.54 0 30,000
Urban B 7,765,878 47,207 122,895 1.6% 15.3% 15.4% $19.01 0 30,000
Birmingham/Bloomfield B 1,445,860 10,250 5,652 0.4% 9.1% 9.8% $21.18 0 0
Dearborn B 2,100,626 8,171 38,119 1.8% 49.9% 49.9% $14.68 0 0
Downriver B 404,475 -135 -135 0.0% 42.0% 42.0% $12.65 0 0
Farmington/Farmington Hills B 3,560,716 -1,670 8,146 0.2% 27.6% 27.8% $17.54 0 0
Macomb B 649,646 4,626 143,684 22.1% 12.1% 12.1% $17.38 0 0
Northern I-275 Corridor B 2,562,632 27,338 36,733 1.4% 12.6% 13.3% $19.19 0 0
North Oakland B 1,942,652 -6,131 38,153 2.0% 11.1% 11.1% $15.65 0 0
Royal Oak/Southeast Oakland B 638,607 833 -28,611 -4.5% 9.9% 9.9% $14.16 0 0
Southern I-275 Corridor B 178,160 0 0 0.0% 0.0% 0.0% $0.00 0 0
Southfield B 10,020,452 16,902 362,570 3.6% 28.2% 28.3% $16.52 0 0
Troy B 8,546,565 -114,988 7,358 0.1% 26.5% 26.6% $17.43 0 0
Washtenaw B 2,309,002 13,321 87,660 3.8% 4.0% 4.0% $25.57 0 0
Suburbs B 34,359,393 -41,483 699,329 2.0% 23.8% 24.0% $16.83 0 0
Detroit B 42,125,271 5,724 822,224 2.0% 22.3% 22.4% $17.11 0 30,000
Office submarket map
Notable 2015 sales transactions
38701 7 Mile Road
Sale Price: $16,800,000
Square feet: 133,743
Buyer: Universal Properties
35055 W 12 Mile Road
Sale Price: $4,400,000
Square feet: 68,119
Buyer: Promanas Group
3027-3061 Miller Road
Sale Price: $12,000,000
Square feet: 40,000
Buyer: Forestcove Land
2600 W Big Beaver Road
Sale Price: $35,000,000
Square feet: 450,000
Buyer: Sovereign Partners
3011 W Grand Boulevard
Sale Price: $12,200,000
Square feet: 634,819
Buyer: HFZ Capital
JLL | Detroit | Office Outlook | Q4 2015
Job growth/loss by sector (12-month change): Detroit
Industrial employment trends (12-month change, 000s): Detroit
Employment vs. unemployment rate: Detroit
Industry employment stratification: Detroit
Job growth (12-month change): United States vs. Detroit
Office employment update
Detroit | Q4 2015
5.0% U.S. unemployment
1.2% U.S. 12-month job growth
5.2% Detroit unemployment
1.8% Detroit 12-month job growth
5.1% Michigan unemployment
1.7% Michigan 12-month job growth
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
2010 2011 2012 2013 2014 2015
Detroit United States
0%
4%
8%
12%
16%
20%
1,550,000
1,650,000
1,750,000
1,850,000
1,950,000
2,050,000
2,150,000
2005 2007 2009 2011 2013 2015
Nonfarm employment
Unemployment
Professional & Business Services,
381,000 , 19%
Trade, Transportation & Utilities,
367,800 , 19%
Educational & Health Services,
313,400 , 16%
Manufacturing, 249,000 , 13%
Government, 183,700 , 10%
Leisure & Hospitality, 182,100 , 9%
Financial Activities, 110,400 , 6%
Other Services, 77,500 , 4%
Mining, Logging & Construction, 73,100 , 4%
Information, 27,200 , 1%
-4,300
-1,500
-400
2,000
3,600
4,400
4,500
5,600
9,100
10,800
-6,000 -2,000 2,000 6,000 10,000
Government
Other Services
Information
Manufacturing
Leisure & Hospitality
Mining, Logging & Construction
Trade, Transportation & Utilities
Financial Activities
Educational & Health Services
Professional & Business Services
JLL | Detroit | Office Outlook | Q4 2015
-30.0
-15.0
0.0
15.0
30.0
2010 2011 2012 2013 2014 2015
Professional and Business Services
Information
Government
Financial Activities
For more information, please contact:
Andrew Batson
Manager, Research
+ 1 216 937 4374
Dave MacDonald
Executive Vice President, Brokerage
+ 1 248 581 3333
AJ Rich
Analyst, Brokerage
+ 1 248 581 3326
About JLL
JLL (NYSE: JLL) is a professional services and investment management firm offering specialized real estate services to clients seeking increased
value by owning, occupying and investing in real estate. A Fortune 500 company with annual fee revenue of $4.7 billion and gross revenue of $5.4
billion, JLL has more than 230 corporate offices, operates in 80 countries and has a global workforce of approximately 58,000. On behalf of its
clients, the firm provides management and real estate outsourcing services for a property portfolio of 3.4 billion square feet, or 316 million square
meters, and completed $118 billion in sales, acquisitions and finance transactions in 2014. Its investment management business, LaSalle Investment
Management, has $56.0 billion of real estate assets under management. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle
Incorporated. For further information, visit www.jll.com.
This publication is the sole property of Jones Lang LaSalle IP, Inc. and must not be copied, reproduced or transmitted in any form or by any means,
either in whole or in part, without prior written consent of Jones Lang LaSalle IP, Inc.
COPYRIGHT © JONES LANG LASALLE IP, INC. 2016
Neal Warling
Executive Vice President, Brokerage
+ 1 734 769 3201
Ben Schrode
Associate, Brokerage
+ 1 248 581 3325
Aaron Moore
Analyst, Research
+ 1 248 581 0808
Kelly Fisher
Analyst, Brokerage
+ 1 734 769 3203
John Cullen
Senior Vice President, Brokerage
+ 1 248 581 3306
AJ Weiner
Managing Director, Brokerage
+1 248 581 3335
JP Champine
Vice President, Brokerage
+ 1 248 581 3322
Sean Cavanaugh
Senior Associate, Brokerage
+ 1 248 581 3331
Larry Emmons
Managing Director, Brokerage
+ 1 248 581 3388
Anne Knopke
Senior Associate, Brokerage
+ 1 248 581 3336
