The 74.5-million-square-foot general purpose, multi-tenant Detroit office market had a 26.5% vacancy rate for the second quarter of 2012, up 30 basis points for the quarter, down 30 from a year earlier, and still the second highest among the top Reis markets. Net absorption was minus 231,000 square feet for the quarter, bringing the half-year total to plus 90,000 square feet. The vacancy rate edged down to 26.3% in July. The occupied inventory is 12.1 million square feet lower than at year-end 2000. The total inventory has fallen by 1.3 million square feet since year-end 2006.
Just 74,000 square feet is under construction, in a building in suburban Bloomfield Hills, and Reis predicts moderate demand over the next few years will gradually reduce vacancy. Not until the end of 2016, however, is the vacancy rate forecast to slip under 20.0%.
Rents have stopped falling according to Reis, with no change in 2011 and small increases in the first half of 2012. In the second quarter both the average asking rent and average effective rent edged up 0.2% to $18.83 psf and $14.03 psf, respectively. There was no change in July, and increases of 1.0% asking and 1.2% effective are forecast for all of 2012. Despite ongoing high vacancy, Reis predicts improving gains during the forecast period, rising from 1.5% asking and 2.3% effective in 2013 to 3.0% asking and 4.3% effective in 2016. Only the more viable buildings, however, may benefit from the increases as others remain abandoned.
“Second quarter 2012 closed with an overall vacancy rate of 24.8%, a decrease of 1.2 percentage points compared to one year ago and a decrease of 0.4 percentage points compared to first quarter 2012,” according to Cushman & Wakefield. “Currently, the average asking rental rate is $16.48 psf, compared to $17.09 psf one year ago.”