MARKET SUMMARY MICHIGAN, METRO DETROIT AREA FOURTH QUARTER 2016 P LAN T E M OR AN CRES A. pmcresa.com

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1 FOURTH QUARTER 2016 MICHIGAN, METRO DETROIT AREA MARKET SUMMARY P LAN T E M OR AN CRES A NORTHWESTERN HIGHWAY SOUTHFIELD, MI pmcresa.com Connect with us for more information: Subscribe to our blog at: blog.pmcresa.com Follow us

2 PLANTE MORAN CRESA METRO DETROIT MARKET SUMMARY OUR MISSION Plante Moran Cresa provides customized solutions exclusively for corporate space users by offering fully integrated services that align their real estate needs with their business plans, delivering maximum cost savings and exceeding expectations. TABLE OF CONTENTS 01 THE TENANT S PERSPECTIVE 02 OFFICE MARKET 03 INDUSTRIAL MARKET 04 CONSTRUCTION & DELIVERIES 05 BUILDING SALES 07 EMPLOYMENT 08 REAL ESTATE INSIGHTS 09 ABOUT PLANTE MORAN CRESA Information contained herein is provided, in part, from third-party sources, including Cresa, the U.S. Bureau of Labor Statistics, Real Capital Analytics, and CoStar Group. Even though obtained from sources deemed reliable, no warranty or representation, expressed or implied, is made as to the accuracy of the information herein.

3 FOURTH QUARTER 2016 THE TENANT S PERSPECTIVE At 12.2%, office vacancy in the Metro Detroit area is at its lowest point in more than 10 years. Industrial space continues to be absorbed in the Metro Detroit area. Vacancy is predicted to continue to drop during 2017, even as rental rates continue to rise. Progress continues on the largest project in the Metro Detroit area: a 50-block, $627 million sports and entertainment district centered around the new Little Ceasers arena. One of the largest transactions within the last four quarters is the sale of 7500 Tank Boulevard in Warren, a 268,000-square-foot industrial building that sold for more than $18 million. Michigan s unemployment rate rose slightly to 5.0%. The labor force totals approximately 4.8 million. 1

4 PLANTE MORAN CRESA METRO DETROIT MARKET SUMMARY OFFICE MARKET UPDATE The Metro Detroit office market ended the fourth quarter of 2016 with a vacancy rate of 12.2%. The vacancy rate was down over the previous quarter, with net absorption totaling positive 659,040 square feet. Rental rates increased 1.0% over last quarter to end at $18.89 per square foot. There is currently more than 1 million square feet of office space under construction in the Metro Detroit area. Nationally, the office market s net absorption is down compared to Q Office vacancy fell compared to the previous quarter, now resting at 9.7%. Rents average $24.30 per square foot. According to CoStar, more than million square feet of office space is currently under construction, which will soon add more choices for tenants. DETROIT OFFICE CLASS A RATES OFFICE CLASS B RATES CBD 8.0% $ % $19.30 VACANCY PER SQUARE FOOT VACANCY PER SQUARE FOOT SUBURBS 11.4% $ % $18.58 VACANCY PER SQUARE FOOT VACANCY PER SQUARE FOOT ATLANTA BOSTON CHICAGO SAN FRANCISCO SELECT NATIONAL RATES $25.31 $70.13 $34.33 $62.46 CBD Class A PER SQUARE FOOT PER SQUARE FOOT PER SQUARE FOOT PER SQUARE FOOT 2

5 FOURTH QUARTER 2016 INDUSTRIAL MARKET UPDATE Metro Detroit s industrial market vacancy fell from 3.9% in the third quarter to 3.8%. More than 1.4 million square feet of space was absorbed this quarter. Average rental rates increased to $5.29 from $5.25 per square foot. There is currently 3.3 million square feet under construction in the Metro Detroit area. Nationally, industrial demand continues with vacancy to 5.4%. More than million square feet of industrial space is currently under construction, but vacancy continues its decline as absorption outpaces deliveries. It is expected that total space under construction will soon add choices for tenants. INDUSTRIAL SUBMARKET STATISTICS METRO DETROIT 3.8% VACANCY $5.29 Market # Buildings Vacant (SF) Vacant (%) Rates Airport/I-275 3,157 3,533, % $4.62 Detroit Area 1,878 7,230, % $3.83 Downriver 701 1,625, % $3.89 PER SQUARE FOOT East Area 4,133 2,383, % $5.05 I-96 Corridor 2,112 1,658, % $7.06 NATIONAL 5.4% VACANCY $6.05 Oakland County NW Royal Oak/ Southfield 1,415 2,470, % $6.72 1, , % $5.87 Troy Area 1, , % $6.48 Washtenaw 877 1,143, % $8.25 PER SQUARE FOOT TOTAL 16,926 21,509, % $5.29 3

6 PLANTE MORAN CRESA METRO DETROIT MARKET SUMMARY CONSTRUCTION & DELIVERIES Approximately 2.5 million square feet was delivered in Metro Detroit during 2016, down compared to the approximately 3.0 million square feet delivered in New industrial space accounts for 76% of the 2016 deliveries. Compared to last quarter, the percentage of preleased construction has decreased for both product types. SQUARE FEET OF DELIVERIES BY YEAR (IN MILLIONS) 6.0 UNDER CONSTRUCTION Market Office Industrial 5.0 # Properties Square Feet 1,009,848 3,328, Square Feet of Pre-leased 874, , % Pre-leased 86.6% 25.0% Office Industrial RECENT DELIVERIES 4 Royal Oak/Southfield Industrial Market, 300,000 SF Oakland County NW Industrial Market, 125,000 SF Oakland County NW Industrial Market, 90,000 SF Detroit/The Pointes Market, 60,000 SF

7 FOURTH QUARTER 2016 SELECT SALES BUILDING SALES Year to date, the total sales activity for both the office and industrial markets in Metro Detroit was down in 2016 compared to Industrial sales rose from Q to Q3, while office sales continued to decline. OFFICE INDUSTRIAL Telegraph Rd., Southfield Office Building Sales (in millions) Industrial Building Sales (in millions) DATE: 4/26/2016 SF: 297,000 PRICE: $22,901,500 $300.0 $250.0 $200.0 $150.0 $100.0 $50.0 $- $200.0 $175.0 $150.0 $125.0 $100.0 $75.0 $50.0 $25.0 $ Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q3 Office Sales Price/SF Industrial Sales Price/SF 7500 Tank Blvd., Warren DATE: 8/12/2016 SF: 268,000 PRICE: $18,700,000 $350.0 $300.0 $250.0 $200.0 $150.0 $100.0 $50.0 $ Q Q Q Q Q Q Q Q Q Q Q3 $90.0 $80.0 $70.0 $60.0 $50.0 $40.0 $30.0 $20.0 $10.0 $ Q Q Q Q Q Q Q Q Q Q Q3 Detroit U.S. Detroit U.S. Office Cap Rate Comparison (%) Industrial Cap Rate Comparison (%) Executive Hills Blvd., Auburn Hills DATE: 3/31/ SF: 187,197 PRICE: $12,075, Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q3 Detroit U.S. Detroit U.S. 5

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9 FOURTH QUARTER 2016 EMPLOYMENT According to the U.S. Bureau of Labor Statistics, the national unemployment rate descreased from 4.9% at the end of Q3 to 4.7% at the end of Q4. Michigan s unemployment rate rose to 5.0% and the labor force totals approximately 4.9 million workers. NATIONAL Unemployment Rate 4.7% MICHIGAN Unemployment Rate 5.0% U.S. Bureau of Labor Statistics NATIONAL LABOR STATISTICS UNEMPLOYMENT RATE COMPARISON Participation Rate Unemployment Rate Employment Ratio Michigan National 7

10 PLANTE MORAN CRESA METRO DETROIT MARKET SUMMARY REAL ESTATE INSIGHTS Is Your Rental Rate Really a Good Deal? When evaluating a real estate option, many tenants naturally focus on the rental rate. Rental rates are important, but a low rate does not always translate into a good real estate deal. Three mitigating factors may affect whether a rental rate is a good deal: 1. The costs included (or excluded) from the base rental rate 2. The efficiency of the space 3. Concessions Rental Rate vs. Total Occupancy Cost Commercial leases have several basic structures that affect which costs are amortized into the base rent. Industrial and retail space users usually sign a single-net lease (N) or triple-net lease (NNN). Office transactions usually involve a modified gross lease or full-service gross lease. Each landlord defines these structures differently, so it s important to have a clear understanding of which costs fall outside the scope of the negotiated base rent. Square Footage vs. Efficiency Space efficiency also factors in at this point: One space may cost $5 more per square foot than another but be a 20 percent more efficient space, making the seemingly more-expensive space in actuality a much better deal once you look at factors outside of the cost-per-square-foot rental rate. It all comes down to the big-picture question, What am I paying to be here? To figure that out, you ll want an independent tenant representative to evaluate your useable space and determine the most effective space options for your operations. Concessions Landlord concessions should also be considered, and may include free rent, tenant improvements, moving allowance, reduced annual increases, and other potential incentives. Your tenant rep can help you determine which concessions would benefit you the most and how you can ensure they are part of your real estate deal. Making a Smart Real Estate Decision Comparing the cost of your space options involves more than just cost per square foot. To figure out what works best for your organization and get the best deal you can, talk to your tenant representative about your options and negotiating power. If you d like to learn more ways to evaluate a real estate deal, check out our e-book 10 Things Most Executives Miss in a Real Estate Transaction. You can find it at blog.pmcresa.com. 8 Read more at blog.pmcresa.com.

11 FOURTH QUARTER 2016 LEARN MORE To learn more about the Detroit Metro real estate market or to discuss your company s real estate needs, please contact one of our representatives at ABOUT PLANTE MORAN CRESA Plante Moran Cresa (PMC) is an independent commercial real estate consulting firm exclusively representing buyers and lessees in the delivery of fully integrated real estate services, including tenant representation, project management, and strategic real estate consulting. Financial Advisory Services Human Capital In short, we offer unbiased advocacy for companies looking to lease, buy, build, or develop a comprehensive real estate strategy to align your company goals and your real estate. SUSTAINABILITY Operational Effectiveness FACILITIES MANAGEMENT Technology Audit, Accounting, & Tax Trust Strategy, & Global Business Advisory Services Real Estate Advisory Services Tenant & Buyer Representation Portfolio Management Asset Positioning Cost Segregation EXCLUSIVE TENANT REPRESENTATION NATIONAL & GLOBAL COVERAGE LEASE ADMINISTRATION Development Advisory Services Project Management Project Feasibility Capital Markets National Site Selection & Incentives PMC is affiliated with Plante Moran, one of the nation s largest public accounting and business advisory firms. We re also a member of the Cresa national and global tenant representation network of corporate real estate service providers. 9

12 P LAN T E M OR AN CRES A NORTHWESTERN HIGHWAY SOUTHFIELD, MI pmcresa.com Connect with us for more information: Subscribe to our blog at: blog.pmcresa.com Follow us