Metro Detroit’s commercial real estate market finished one of the strongest quarters in recent history and is starting to erase some of the recession-era damage.
Commercial real estate firms are reporting growth for the market, after it lost more than 4.5 million square feet of occupied office space since 2008 as companies closed and payrolls shrank.
Driving the growth is a combination smaller incubator companies — such as medical and technology firms — as well as expansions by the companies that have survived the recession, said Randall Book, executive vice president in the Southfield office of Colliers International.
“We lost a lot of companies in the recession,” he said. “And the ones that are left are now getting all of the work that’s out there. So for those companies, they’re feeling confident that they can finally expand.”
A report by the Southfield office of Grubb & Ellis shows 150,000 square feet of positive absorption, reversing a trend of negative absorption since 2008. Absorption is a metric to gauge real estate usage, calculated by subtracting the amount of space vacated from the amount of space leased.
The Southfield office of CBRE Group Inc. shows positive absorption of 390,000 square feet for the quarter, but it has shown positive numbers throughout 2011. CBRE only tracks buildings over 20,000 square feet, so its numbers differ from Grubb & Ellis.
The positive moves are a drop in the bucket, however.
From the beginning of 2008 to the end of March, there has been a total of 4.6 million square feet of negative absorption, according to a Crain’s analysis of data from Washington, D.C.-based CoStar Group Inc.
And what’s more, real estate brokers say, the region’s 27-percent vacancy rate means more space still needs to be filled before there is a scarcity of space that will trigger an increase in rental rates. The current asking rate of $17.89 per square foot, according to CoStar, is a 10-year low.
Brian Schwartz, a vice president with Colliers, said that current proposals he has received from landlords is showing a slight improvement over current levels.
“But it’s still aggressive, and rates are very low historically,” he said.
Most of the office deals in 2011 have been companies either expanding or consolidating offices into one, larger, office space.
Among the recent office deals was an expansion of Troy-based Flagstar Bank. The company signed a 95,000-square-foot lease in January at the Troy Officentre complex near its headquarters.
In Farmington Hills, there was a 90,000-square-foot lease by Panasonic Automotive Systems Company of America at 31701 Corporate Drive as the company consolidated several of its offices around town into one larger office.
The Detroit office market has posted positive absorption in past quarters but saw a negative move attributed to Dallas-based Comerica Bank’s move out of the One Detroit Center office tower. That building, however, also saw the lease of 25,000 square feet to Aegis Group’s Carat advertising company.
Also making an impact is an expansion by Auburn Hills-based Chrysler Group LLC, which leased 147,000 square feet at 2301 Featherstone Road, a building the company was forced to sell during its bankruptcy.
Noteworthy, also, was the expansion of the headquarters for Pet Supplies Plus into a 33,000-square-foot space at 17197 N. Laurel Park in Livonia.
The leasing activity is a good sign, but it also signals that the vacant cubicles in many offices are now being filled, said Gary Goodman, managing director of brokerage service for Farmington Hills-based Friedman Integrated Real Estate Solutions — which was a broker for both the Pet Supplies Plus and Chrysler deals.
In addition to bigger deals, the smaller deals such as San Francisco-based Twitter moving people to Detroit, are having an impact on peoples’ attitudes.
“We’re starting to see more interest from out-of-town investors,” Goodman said. “There are deals that are opening peoples’ eyes and showing that there’s really something to this idea of Detroit as a home to tech companies.”