A range of determinants will come into play when large tenants consider urban versus suburban leasing.

1. Office employment and vacancy move in opposite directions
Source: JLL Research
Availability in Detroit’s CBD continues decline
Source: JLL Research
Differential between urban and suburban asking rents
Source: JLL Research
Tenant demand continues to mount downtown
2,257
Office Insight
Detroit | Q2 2015
61,685,222
Total inventory (s.f.)
197,306
Q2 2015 net absorption (s.f.)
$18.17
Direct average asking rent
376,000
Total under construction (s.f.)
23.2%
Total vacancy
795,213
YTD net absorption (s.f.)
2.8%
12-month rent growth
93.8%
Total preleased
600
630
660
690
15.0%
20.0%
25.0%
30.0%
2010 2011 2012 2013 2014 2015 YTD
Office Employment (000s) Vacancy %
0.0%
10.0%
20.0%
30.0%
2010 2011 2012 2013 2014 2015 YTD
$17.00
$19.00
$21.00
$23.00
2010 2011 2012 2013 2014 2015 YTD
Urban Suburban
Job growth spurs office demand
Office-using employment sectors have experienced substantial employment
expansion over the last year, recording an annualized net gain of 14,500 jobs
across Metro Detroit. Appropriately, office vacancy has continued to decline
since hitting a record high of 29.2 percent in the first quarter of 2011. With an
improving economy and increasing space needs by office tenants, total vacancy
is expected to continue its downward trend through 2015. Albeit Detroit’s
improving economic condition, fundamentals are unlikely to justify any
speculative construction for the short-term. Consequently, demand growth will
continue to translate almost entirely into vacancy improvements.
Big firms trade the suburbs for the city
Detroit’s CBD is the circumstance of an underserved submarket with pent up
demand. Developers are racing to fill that void and attract tenants by renovating
and developing in CBD. The market is becoming increasingly bullish on
Downtown, with firms such as Ally Financial and Fifth Third signing long term
leases for 320,000 square feet and 62,000 square feet, respectively. Class A
availability in the CBD continues to decline from a recent high of 24.9 percent in
2010 to 9.6 percent at the end of Q2 2015. The CBD will continue to creep near
capacity in the near-term as demand growth outpaces supply additions.
Tenants will find shifting dynamics across the landscape
A range of determinants will come into play when large tenants consider urban
versus suburban leasing. When a tenant looks at the downtown market versus
the suburban market, the difference between asking rates is typically $4 to $6
per square foot and at times can reach a spread of $9 to $11 because of the city
income tax and other factors. However, companies seeking to lure a highly
skilled workforce and position themselves within a cluster of economic activity
are reaping the benefits of downtown. This shift has already upended some long-
standing dynamics of city versus suburban leasing prices and occupancy rates.

2. Current conditions – submarket Historical leasing activity (s.f.)
Source: JLL Research Source: JLL Research
Total net absorption (s.f.)
Source: JLL Research
Total vacancy rate (%)
Source: JLL Research
Direct average asking rent ($ p.s.f.)
Source: JLL Research
-1,247,120 -1,304,860
-476,545
-1,953,820
-1,767,490
1,277,568
1,510,536
176,382
1,288,053
795,213
-2,500,000
-1,000,000
500,000
2,000,000
2006 2007 2008 2009 2010 2011 2012 2013 2014 YTD 2015
$21.05
$20.75
$19.73
$19.31
$19.10
$18.56
$18.15
$17.76
$17.99 $18.17
$17.00
$18.50
$20.00
$21.50
2006 2007 2008 2009 2010 2011 2012 2013 2014 YTD 2015
23.7%
25.9%
26.7%
30.0%
32.9%
30.8%
28.3% 28.0%
25.3%
23.2%
20.0%
25.0%
30.0%
35.0%
2006 2007 2008 2009 2010 2011 2012 2013 2014 YTD 2015
Northern I-275,
Washtenaw
Landlordleverage
Tenantleverage
Peaking
market
Falling
market
Bottoming
market
Rising
market
CBD
Downriver,
Dearborn
5,000,000 5,000,000
5,300,000 5,100,000
2,000,000
0
2,000,000
4,000,000
6,000,000
2011 2012 2013 2014 YTD 2015
Southfield, Macomb
Farmington Hills
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Royal Oak
Southern I-275
North Oakland
Birmingham
New Center