Report: Metro Detroit Office, Industrial Spaces Still Seeing More Vacancies Due in Part to Work-at-Home Shift

Metro Detroit’s industrial and office spaces are a mixed bag of high demand – think distribution-center space for big companies like Amazon – or struggling to find tenants because of the challenges posed in a pandemic-centric real-estate world, according to researchers.

According to a Newmark Knight Frank report released Tuesday, Metro Detriot’s industrial vacancy rate increased 10 basis points to 4.5% during the third quarter of 2020. The office market, meanwhile, saw its vacancy rate jump 50 basis points to 15.5% during the same time period.

During that third quarter, more than 309,000 square feet of office space became vacant, the report from Newmark noted. “Most metro submarkets saw decreased office demand and posted increased vacancies. COVID-19 continues to cause service sector activity to slow,” the report said, and it is likely that these vacancies will continue to grow.

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“…Many companies are continuing work-from-home policies, which significantly reduces demand for office space and increases the amount of shadow space or unutilized leased space,” the report noted. “Increasingly this unutilized space is being put on the market.”

Metro Detroit office vacancies varied according to city. For example, Southfield’s office market vacancy rate remained steady at 19.9%. The Detroit Central Business District saw its vacancy rate climb to 12.7% with more than 30,000 square feet of net vacancies coming into the market. In Auburn Hills, the vacancy rate fell to 11.8% as ASI moved into 2000 East Taylor Road. And in Troy, the office-market vacancy rate went up to 18.1%.

Distribution boost
For industrial space, most of the demand comes from bulk warehouse space – more than 1 million square feet of what is largely new construction was picked up during the third quarter, the report said. Because the demand remains high, construction of bulk-warehouse space continues to grow – the report notes that nearly 80% of the five million square feet now under construction is speculative bulk-warehouse development.

“The evolution of consumer shopping methods continues to spur new demand for specialized industrial buildings in Metro Detroit. Those specialized buildings at the heart of the e-commerce industry are modern bulk warehouse/distribution centers designed to maximize efficiencies in storage goods and distributing them to the public,” Fred Liesveld, managing director of Newmark’s Detroit office, said in a statement. “These facilities are going to be the heart of industrial demand and the main driver of new construction for the foreseeable future.”

As a result, the vacancies in this kind of industrial space are rare, Liesveld and the report noted. In just over the past two years, “users have absorbed 6.3 million square feet of bulk warehouse space. Demand is particularly growing for modern efficient facilities. So much so that the 26 million-square-foot inventory of Class A bulk warehouse space has a vacancy rate of just 1.6%,” the report said.

The report also said that southern Wayne County likely will see any available space be snapped up, especially new builds, as ecommerce continues to grow within that geographic area.

“Developers are constructing new speculative developments as demand is expected to remain strong in the coming years as ecommerce expands,” the report said. “Just over 2.1 million square feet, or 65%, of Metro Detroit’s overall speculative development is bulk warehouse in Southern Wayne.”

Meanwhile, in southeast Oakland County, industrial vacancy grew 40 basis points to 2.8% as nearly 315,000 square feet in net new vacancies were added to the market. Macomb County rates fell 80 basis points to 3.4% as nearly 1.5 million square feet were absorbed.

And the city of Detroit’s industrial vacancy rate jumped 70 basis points to 13.1% as more than 425,000 square feet in net vacancies were added to the market – that’s because Sakthi Automotive Group left its 618,000-square-foot manufacturing plant on West Fort and Waterman streets, the report said. However, Bedrock purchased that facility on 37 acres because of the limited availability of modern facilities and continuous land elsewhere in the city.