Downtown Detroit office fundamentals are improving, with increasing rents, decreasing vacancy rates, and more refinancing activity for commercial properties. Over 300,000 square feet of new office space was delivered in 2015, marking an increase in construction beyond just rehabbing existing buildings. Urban office submarkets continue to outperform suburban areas, with rents in the city up 5.1% compared to a 3.8% increase in the suburbs. Vacancy rates have also decreased more substantially in the urban core over the past year. Recent large commercial mortgage loans on downtown Detroit buildings indicate growing creditworthiness and investment in the central business district.

1. Aggregate value of refinancing in the CBD (2013-2015)
Source: JLL Research
Square feet of office product delivered
Source: JLL Research
Urban vs suburban, rents and vacancies
Source: JLL Research
Detroit’s office fundamentals continue upward
2,257
Office Insight
Detroit | Q3 2015
61,021,219
Total inventory (s.f.)
441,047
Q2 2015 net absorption (s.f.)
$18.23
Direct average asking rent
376,000
Total under construction (s.f.)
22.8%
Total vacancy
710,602
YTD net absorption (s.f.)
3.5%
12-month rent growth
93.8%
Total preleased
Landlords are beginning to refinance downtown properties
Downtown Detroit is beginning to show its credit worthiness to the capital
markets. With interest rates at all time lows but expected to rise in the near
future, investors are looking to take advantage. Recently a deal closed for the
First National Building to get a $70 million loan, which was brokered by Bernard
Financial. The building was purchased by an affiliate of Dan Gilbert in August
2011 for $8.1 million. It is the largest commercial mortgage-backed securities
loan on a Detroit building since Bedrock and Meridian Health purchased One
Campus Martius last year for $142 million. The pie chart represents the
aggregate value of refinancing activity in the CBD.
Office construction is on the upswing in Metro Detroit
Detroit’s office development is beginning to move beyond the rehabbing of old
buildings. Increasing rents, positive absorption and limited availability are
determining factors needed to give developers the confidence to start new
construction. As of third quarter 2015, 310,000 square feet was delivered, up
from 97,562 square feet in the previous year. As of now, new construction is
primarily owner-occupied and build to suit, however, we project speculative
construction will increase as inventory continues to tighten across the
submarkets.
Urban submarkets continue to outperform suburban submarkets
Detroit’s submarkets are in the midst of a tug of war. In the urban submarkets,
the average asking rent currently stands at $20.08 per square foot, up 5.1
percent from this time last year. Meanwhile, vacancy has steadily decreased
year-over-year from 17.9 percent to 14.4 percent today. In the suburban
submarkets, ownership is more diverse, and although rents are improving, they
are appreciating at a slower pace than they are downtown. Suburban rents have
increased 3.8 percent year-over-year to $17.91 per square foot. Furthermore,
total vacancy in the suburbs remains elevated and relatively fixed, showing little
improvement over the last four years.
$15
$18
$21
0%
15%
30%
Q3 2012 Q3 2013 Q3 2014 Q3 2015
Urban Rents Suburban Rents
Urban Vacancy Suburban Vacancy
First National Building
One Woodward Building
1001 Woodward
Fmr United Way Bldg
Chyrsler House
10.1M
41.0M
70.0M
37.0M
51.5M
0
150,000
300,000
450,000
600,000
2010 2011 2012 2013 2014 2015 YTD

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
710,602
-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
$18.23
$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%
22.8%
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
©2015 Jones Lang LaSalle IP, Inc. All rights reserved.For more information, contact: Aaron Moore | aaron.moore@am.jll.com
Royal Oak
Southern I-275
North Oakland
Birmingham
New Center