The surging auto industry has unleashed a torrent of construction and leasing activity in metropolitan Detroit, making 1994 the best year for the real estate industry here since the booming ’80s.
That’s the good news. The bad news is that Detroit’s own central business district, as well as portions of Troy and Southfield, Mich., continue to suffer from office occupancy rates that are probably at all-time lows, said midyear reports from two commercial real estate brokerage firms.
And here’s more potential bad news, depending on one’s perspective: The rising demand for office, warehouse and industrial space is transforming a tenant’s market into a landlord’s market for the first time in years.
Rents are rising, and the concessions once routinely won by tenants, such as months of free rent and generous decorating allowances, are disappearing.
“Tenants have been spoiled because supply and demand have been so much out of whack. Market conditions have changed,” said Joel Feldman, senior vice president of First Commercial Realty & Development of Southfield, which published a report on the metropolitan office market.
Booming automotive sales were clearly behind the rising demand for warehouse and industrial space during the second quarter of ’94 as auto companies and their suppliers looked for more room.
Cushman & Wakefield, a Southfield-based leasing brokerage firm, reported that there were 17 new industrial facilities under construction during the second quarter, totaling 357,885 square feet. The biggest was a 58,900-square-foot high-tech facility located in Dearborn.
In the city of Detroit itself, the Port of Detroit is experiencing its busiest season in years, with ships waiting in the Detroit River because there isn’t room to dock, Cushman & Wakefield said. To handle the overflow, Detroit Marine Terminals, Inc. plans to break ground soon on a 50,000-square-foot warehouse facility at its Clark Street terminal.
In the office sector, the news was good but not as upbeat as in the industrial side.
Office occupancy rates rose during the second quarter of this year in most communities around Detroit. The overall office occupancy in metro Detroit rose to 82.48 percent during the second quarter from 81.26 percent during the same period last year.
“Clearly, in the vast majority of communities, the question is no longer if there is a recovery taking place, but rather how pronounced it will be,” wrote Feldman.
Unfortunately, office leasing in downtown Detroit continues to suffer as tenants leave for the suburbs.
Downtown office occupancies slid to 79.06 percent during the second quarter from 82.99 percent during the same period a year ago.
That drop of almost 4 percentage points was the largest single decline of any community in metro Detroit’s office market, Feldman said.
Moreover, Southfield and Troy continue to suffer from weak demand in their office markets. Taken together, the three markets of Troy, Southfield and downtown Detroit account for 75 percent of the total Detroit-area office space.
“The very heart and soul of our office community, its three largest and most important centers, are still struggling and facing an uphill battle, with only Southfield showing some signs of real progress,” Feldman worte.
