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Well-known office properties in metro Detroit up for grabs

Blink and you miss it.

In the past week, nearly 800,000 square feet of office space across four well-known properties in Troy and Pontiac became available if you have the scratch.

Toss in the Fisher Building and the former UAW-GM Center for Human Resources in Detroit for good measure, and you have six buildings over 100,000 square feet — some vacant, some well leased — totaling 1.8 million square feet in the market for fresh ownership in metro Detroit the last 30 days or so, according to a survey of listings on CoStar Group Inc., a Washington, D.C.-based real estate information service.

That’s a lot of large buildings go up for new ownership in a short period of time.

The listings aren’t necessarily related or driven by a single cause, but whether they sell and to whom has implications for an office market, like others, that has been turned upside down by the COVID-19 global pandemic.

“I think we are heading for some Armageddon moments on the office side with more vacancy to contend with,” said AJ Weiner, managing director in the Royal Oak office of Chicago-based brokerage house JLL. “Suburban Detroit has yet to feel the full weight of the contraction that’s going to occur as a result of COVID. Heading into COVID as a regional office market, we were already overbuilt, that was already a challenge. We have an overbuilt market, and we have to find a way to collectively right-size it.”

According to a second-quarter report from the local office of New York City-based Newmark Knight Frank, the vacancy rate in metro Detroit’s office market increased to 16.8 percent from 16.5 percent in the first quarter as some 181,000 square feet became available. It’s also nearly 2 percentage points higher than it was a year ago, at 14.9 percent vacant.

The office market has about 78.6 million square feet leasing for an average rate of $20.34 per square foot per year.

“There is a significant (a never-before-seen occurrence) amount of sublease space on the market that, with most burning off within three to five years, when landlords will need to look to fill this vacant space,” said Steve Morris, managing principal of Farmington Hills-based Axis Advisors LLC.

The four buildings that hit the market in the last week are as follows:


“In excess of 50 percent of all suburban office buildings were sold for cents on the dollar from 2011-2016 as a result of the CMBS mortgage foreclosures,” Morris said. “Landlords who purchased office buildings during the aforementioned time now have high occupancy. Thus, a building that was purchased below replacement costs, i.e. $15 to $40 per square foot (which cost $200 per square foot to build) are now on the market for sale in the range of $100 to $150 per square foot. It’s a win-win. The seller will make a very large profit and the purchasers obtain a highly occupied building with the positive outlook that rental rates will again increase a few years out.”

In Detroit, the 635,000-square-foot Fisher Building hit the market last month and the 420,000-square-foot building now known as The Icon, formerly the UAW-GM Center for Human Resources, hit the market shortly thereafter.


Posted By: Crain’s Detroit Business on September 28, 2021.  For more information, please click here to read the source article.

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