2 Renaissance Center towers in Detroit just sold: What it means for downtown office market
Posted By: Detroit Free Press on January 3, 2024. For more information, please click here to read the source article.
The vacancy rate is up, leasing prices are down and employers still aren’t demanding everyone be back in the office like it is 2019.
Yet this current state of the downtown Detroit office market did not stop a local real estate firm last month from buying two of the seven Renaissance Center towers, with plans to keep the glassy pair as office space.
Farmington Hills-based Friedman Real Estate said last week that on Dec. 21 it bought the RenCen’s 500 and 600 towers from a New Jersey utility company that had owned them for years.
One of the towers is full, the other is mostly empty. The sale price wasn’t disclosed.
“We are big believers in the Detroit office market,” said Jared Friedman, executive managing director of Friedman Real Estate and son of company co-founder David Friedman. “These buildings specifically are very nice buildings — they are beautiful — (and) they have been corporate-occupied and owned since they were built in the ’80s. They really have some unique characteristics and they have the best riverfront views in the city.”
Both towers, at 21 stories, are smaller than the other five RenCen towers and came several years later as a Phase II, opening in 1981.
The RenCen had its 1977 grand opening with four 39-story office towers surrounding a central 73-story hotel, now a Marriott. All five original towers are owned by General Motors, which remains headquartered in the center.
Friedman’s newly purchased Tower 500 is occupied by Blue Cross Blue Shield of Michigan. Until recently, The Blues also occupied some of Tower 600. Now Tower 600 is mostly vacant and ready to lease to office tenants, Jared Friedman said.
He considers both towers as “Class A-” office space, meaning a slight step below the very best. They each contain over 300,000 square feet and were last renovated in 2011.
Real estate experts describe “Class A” office space in Detroit as typically newer or more recently renovated than Class B or C, with higher quality construction and amenities and fancier lobbies.
While Friedman Real Estate owns commercial properties across metro Detroit and assists Dan Gilbert’s Bedrock firm with leasing its downtown office buildings, the RenCen towers are the only downtown buildings that the company owns.
Friedman Real Estate is relatively upbeat about the future of office space — “we think the pendulum swung way too far in one direction” — but surely has work ahead in filling up that second tower in a post-pandemic world.
Vacancies in Detroit office space, like that in cities nationwide, have been on the rise since COVID-19 and employers’ embrace of remote and hybrid work policies.
The downtown vacancy rate was 19% in the third quarter, up from about 14% a year earlier, according to a report by commercial real estate services firm CBRE. The average asking lease price during that period slipped 4% to $23.28 per square foot gross.
A few of the bigger recent moves were the departures of Meridian Health and BMC Compuware from downtown’s One Campus Martius building (formerly the Compuware Building), which left 130,000 square feet of office space to fill, according to the CBRE report.
Steve Morris, managing principal at Axis Advisors, a commercial tenant advisory firm, said tenants in downtown have generally been downsizing space when renewing leases, often taking half or even just a third of the space that they previously used.
Other tenants who are still locked in to longer-term leases have been subleasing their unneeded space, sometimes at a 50% discount off the main leasing rate, Morris said.
And there are fewer people downtown during the workday — even though nights and weekends are bustling.
As of October, the number of average daily workers in downtown was 45% of what it was before the pandemic, according to data captured by location analytics firm Placer.ai and compiled by the Downtown Detroit Partnership.
An office renter’s market
Real estate insiders say these dynamics have given office space tenants more options and price leverage with landlords.
“You are seeing tenants save money,” said Morris of Axis Advisors. Landlords “are not only competing against space on the market, (they) are competing against massive sublease space.”
Jared Friedman said they have not determined what asking rents will be in Tower 600, “but it will be a very good value proposition for tenants.” He noted how the tower also offers one of downtown’s the largest contiguous blocks of available office space, should a large organization wish to move in.
Looking further ahead in 2024, the options for office tenants will expand further.
The large 12-story office building at Dan Gilbert’s Hudson’s site could be done later this year, bringing an additional 400,000 square feet of new “Class A” office space to the market.
Bedrock has yet to announce an official opening date. However, the CBRE report estimates the office building as being ready to lease by the third quarter. The other Hudson’s site building, a 49-story skyscraper with a luxury hotel and condos, also is still under construction.
As for the other RenCen towers, GM has said it is committed to staying in Detroit, even though its daily in-office workforce in Detroit has gone down since the pandemic.
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