SECOND QUARTER 2016 MICHIGAN, METRO DETROIT AREA MARKET SUMMARY P LAN T E M OR AN CRES A 26300 NORTHWESTERN HIGHWAY SOUTHFIELD, MI 48076 248.223.3500 pmcresa.com Connect with us for more information: Subscribe to our blog at: blog.pmcresa.com Follow us at: @pmcresa
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.
SECOND QUARTER 2016 THE TENANT S PERSPECTIVE At 13.3%, the total office vacancy rate 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 throughout 2016, 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 30001 Cabot Drive in Novi, a 188,042-square-foot office building that sold for more than $42.7 million. Michigan s unemployment rate is 4.6%, the lowest jobless rate since February 2001. The labor force shrank by about 19,000 workers since last quarter, to 4.8 million. 1
PLANTE MORAN CRESA METRO DETROIT MARKET SUMMARY OFFICE MARKET UPDATE The Detroit office market ended the second quarter 2016 with a vacancy rate of 13.3%. The vacancy rate was down over the previous quarter, with net absorption totaling positive 1,162,532 square feet. Rental rates increased 0.1% over last quarter to end at $18.78 per square foot. There is currently 723,377 square feet of office space under construction in the Metro Detroit area. Nationally, the office market s net absorption is significantly higher than it was in Q1 2016. Office vacancy was down over the previous quarter, now resting at 10.1%. Rents average $23.56 per square foot. According to CoStar, more than 142.6 million square feet of office space is currently under construction, which will soon add more choices for tenants. OFFICE CLASS A RATES OFFICE CLASS B RATES CBD 6.1% $23.16 11.7% $20.51 VACANCY PER SQUARE FOOT VACANCY PER SQUARE FOOT SUBURBS 12.2% $21.15 16.4% $18.54 VACANCY PER SQUARE FOOT VACANCY PER SQUARE FOOT ATLANTA BOSTON CHICAGO SAN FRANCISCO SELECT NATIONAL RATES $23.53 $82.28 $34.79 $60.23 CBD Class A PER SQUARE FOOT PER SQUARE FOOT PER SQUARE FOOT PER SQUARE FOOT 2
SECOND QUARTER 2016 INDUSTRIAL MARKET UPDATE The Detroit area s industrial market vacancy fell from 4.5% in the first quarter to 4.2%. More than 1.4 million square feet of space was absorbed this quarter. Average rental rates increased to $5.13 from $5.09 per square foot. There is currently 2.7 million square feet under construction in the Metro Detroit area. Nationally, industrial demand continues, bringing vacancy to 5.9%. More than 224.8 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 4.2% VACANCY $5.13 Market # Buildings Vacant (SF) Vacant (%) Rates Airport/I-275 3,135 4,655,963 3.7% $4.51 Detroit Area 1,866 7,777,925 9.4% $3.72 Downriver 689 1,724,063 4.2% $4.07 PER SQUARE FOOT East Area 4,130 2,440,282 2.0% $4.82 I-96 Corridor 2,103 1,739,881 3.1% $6.87 NATIONAL 5.9% VACANCY $5.93 Oakland County NW Royal Oak/ Southfield 1,408 2,552,850 4.8% $6.26 1,203 940,063 4.9% $5.94 Troy Area 1,448 793,957 2.6% $6.48 Washtenaw 874 1,113,515 3.5% $7.96 PER SQUARE FOOT TOTAL 16,856 23,708,499 4.2% $5.13 3
PLANTE MORAN CRESA METRO DETROIT MARKET SUMMARY CONSTRUCTION & DELIVERIES Approximately 2.9 million square feet has been delivered in Metro Detroit so far this year, with new industrial space accounting for 62% of new deliveries. The percentage of preleased construction has decreased slightly for both product types in the most recent quarter. SQUARE FEET OF DELIVERIES BY YEAR (IN MILLIONS) 6.0 UNDER CONSTRUCTION Market Office Industrial 5.0 # Properties 20 28 4.0 Square Feet 723,377 2,745,838 3.0 Square Feet of Pre-leased 572,401 1,295,473 2.0 % Pre-leased 79.1% 47.2% 1.0 0.0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016* Office Industrial RECENT DELIVERIES 4 Washtenaw Market, 68,603 SF Detroit Area Industrial Market, 300,000 SF East Area Industrial Market, 72,407 SF Oakland County NW Industrial Market, 77,050 SF
SECOND QUARTER 2016 RECENT SALES BUILDING SALES Compared to 2015, the total year-to-date office sales activity for Metro Detroit is down. However, industrial sales activity is up compared to last year. OFFICE INDUSTRIAL 2860 Clark Street, Detriot DATE: 1/20/2016 SF: 190,000 PRICE: $29,700,000 $300.0 $250.0 $200.0 $150.0 $100.0 $50.0 $- Office Building Sales (in millions) $200.0 $180.0 $160.0 $140.0 $120.0 $100.0 $80.0 $60.0 $40.0 $20.0 $- Industrial Building Sales (in millions) 2013 Q3 2013 Q4 2014 Q1 2014 Q2 2014 Q3 2014 Q4 2015 Q1 2015 Q2 2015 Q3 2015 Q4 2016 Q1 2013 Q3 2013 Q4 2014 Q1 2014 Q2 2014 Q3 2014 Q4 2015 Q1 2015 Q2 2015 Q3 2015 Q4 2016 Q1 Office Sales Price/SF Industrial Sales Price/SF 1925 Taylor Road, Auburn Hills DATE: 5/9/2016 SF: 125,000 PRICE: $7,100,000 $300.0 $250.0 $200.0 $150.0 $100.0 $50.0 $- 2013 Q3 2013 Q4 2014 Q1 2014 Q2 2014 Q3 2014 Q4 2015 Q1 2015 Q2 2015 Q3 2015 Q4 2016 Q1 $80.0 $70.0 $60.0 $50.0 $40.0 $30.0 $20.0 $10.0 $- 2013 Q3 2013 Q4 2014 Q1 2014 Q2 2014 Q3 2014 Q4 2015 Q1 2015 Q2 2015 Q3 2015 Q4 2016 Q1 Detroit U.S. Detroit U.S. Office Cap Rate Comparison (%) Industrial Cap Rate Comparison (%) 3499 West Hamlin Road, Rochester Hills DATE: 2/1/2016 SF: 127,278 PRICE: $12,500,000 13.00 12.00 11.00 10.00 9.00 8.00 7.00 6.00 2013 Q3 2013 Q4 2014 Q1 2014 Q2 2014 Q3 2014 Q4 2015 Q1 2015 Q2 2015 Q3 2015 Q4 2016 Q1 13.00 12.00 11.00 10.00 9.00 8.00 7.00 6.00 2013 Q3 2013 Q4 2014 Q1 2014 Q2 2014 Q3 2014 Q4 2015 Q1 2015 Q2 2015 Q3 2015 Q4 2016 Q1 Detroit U.S. Detroit U.S. 5
PLANTE MORAN CRESA METRO DETROIT MARKET SUMMARY
SECOND QUARTER 2016 EMPLOYMENT According to the U.S. Bureau of Labor Statistics, the national unemployment rate decreased slightly, from 5.0% at the end of Q1 to 4.9% at the end of Q2. Michigan s unemployment rate also decreased this quarter to 4.6%, the state s lowest jobless rate in more than 15 years. Notably, Michigan saw its labor force shrink by about 19,000 workers this quarter. NATIONAL Unemployment Rate 4.9% MICHIGAN Unemployment Rate 4.6% U.S. Bureau of Labor Statistics NATIONAL LABOR STATISTICS 68.0 66.0 64.0 62.0 60.0 58.0 56.0 12.0 10.0 8.0 6.0 4.0 2.0 0.0 UNEMPLOYMENT RATE COMPARISON 16.0 14.0 12.0 10.0 8.0 6.0 4.0 2.0 0.0 Participation Rate Unemployment Rate Employment Ratio Michigan National 7
PLANTE MORAN CRESA METRO DETROIT MARKET SUMMARY REAL ESTATE INSIGHTS Safeguard Your Space in an Uncertain Market The economy is relatively healthy, but history has taught us that growth cycles never last. As we enter into an uncertain time in the market, it s important to keep your organization s real estate strategy flexible to protect your investment. Here are two effective ways to incorporate flexibility into your real estate: 1. Negotiate flexibilty into the lease. Short-term leases are an obvious way to stay dexterous, but your organization may benefit from a longterm lease interlaced with contractual clauses that give you control over when you terminate, expand, or shed excess space. Options like these may be have additional costs and considerations; your tenant representative can help you weigh the costs and benefits. 2. Build flexibility into your physical work space. A thoughtful space plan, conducted by your tenant representative, can uncover flexible layout options to suit the changing needs of your business while also accounting for current and future adjacencies, growth, and employee needs. As an added bonus, flexible workspaces can lower real estate costs and increase employee efficiency and satisfaction. In the Metro Detroit area, vacancy is at an all-time low, rents are reminiscent of rates seen pre-recession, construction is lagging behind demand, and space is limited. But don t let this market pidgin-hole you into an uncompromising lease. Bring in your tenant representative early in the planning process to discuss how you can keep your real estate agile enough to reconfigure as the market or your business needs change. Organizations that plan ahead will be in a better position to negotiate the best deal. If you d like to learn more ways to safeguard your real estate investment and plan for an uncertain future, check out our recent 30-minute webinar How to Deploy a Flexible Approach to Real Estate. You can find it on-demand at webinars.plantemoran.com. Read more real estate insights at blog.pmcresa.com. 8
SECOND 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 248.223.3500. 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, PLLC, 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
P LAN T E M OR AN CRES A 26300 NORTHWESTERN HIGHWAY SOUTHFIELD, MI 48076 248.223.3500 pmcresa.com Connect with us for more information: Subscribe to our blog at: blog.pmcresa.com Follow us at: @pmcresa