Ann Arbor, as a result of its diverse economic base and prestigious Big Ten university, is showing a positive overall economic outlook. Fueled by strong market fundamentals and increased office demand, the Ann Arbor office market continues to tighten.

1. Ann Arbor asking rents
Source: JLL Research
Ann Arbor vacancy
Source: JLL Research
Ann Arbor office construction (s.f.)
Source: JLL Research
Office demand grows while supply remains stagnant
2,257
Office Insight
Ann Arbor | Q2 2015
6,895,910
Total inventory (s.f.)
9,812
Q2 2015 net absorption (s.f.)
$20.41
Direct average asking rent
602,789
Direct vacancy
75,000
Total under construction (s.f.)
18,335
YTD net absorption (s.f.)
7.0%
12-month rent growth
8.7%
Total vacancy
Ann Arbor landlords hold leverage, raise rents
Ann Arbor, as a result of its diverse economic base and prestigious Big Ten
university, is showing a positive overall economic outlook. Fueled by strong
market fundamentals and increased office demand, the Ann Arbor office market
continues to tighten. The average asking rent for Class A office space has
escalated towards $26.00 per square foot while Class B rents have recorded a
slight uptick towards $21.00 per square foot and Class C rents have remained
level at $15.00 per square foot. With limited supply in the development pipeline,
landlords are projected to hold leverage over rents in the near-term.
Limited availability is a reflection of robust demand
With no supply additions over the last three years, increased tenant demand has
translated entirely into vacancy compression. This is particularly true downtown
where vacancy has decreased to a mere 1.8 percent. Google’s pending
relocation and expansion within the Ann Arbor submarket, from the CBD to the
suburbs, will create a May 2016 availability of 85,000 square feet at McKinley
Towne Centre. Given the unbearably tight market conditions, McKinley is testing
the market with an asking rate of $35 per square foot. Interest in the listing has
been strong and McKinley will almost certainly secure a new tenant before
Google’s relocation.
Limited supply gains are constricting office demand
Downtown Ann Arbor has become a hub for creative and technology driven
industries. However, office demand has increased dramatically while supply has
remained fixed, compressing downtown vacancy to a staggering 1.8 percent.
Ann Arbor must make way for more office space in order to attract companies
who are looking to establish themselves and grow. Infill office construction in
downtown Ann Arbor is difficult, both financially and logistically. Redevelopment
sites are limited and landlords would need to achieve rents near $35 per square
foot. If McKinley is able to achieve rents close to this at Towne Center and
vacancy remains near zero, we may see office construction get underway.
0%
15%
30%
45%
Q2 201520142013201220112010
Class A Class B Class C
$8
$18
$28
Q2 201520142013201220112010
Class A Class B Class C
0
50,000
100,000
150,000
2010 2011 2012 2013 2014 2015 2016
Deliveries Projected completions