To many professionals, the Detroit metro area is stable, dependable, attractive -- rather like a long-time friend you appreciate but wouldn't want to marry.
To others, the multi-county area bordering on Lake St. Clair, the Detroit River and Lake Erie is endlessly fascinating -- without the glamour or breeding you might desire, but something you can't stay away from.
"There have been dramatic changes in some areas in the past 18 months," says Eric Lutz, president of Eric Yale Lutz & Associates in Southfield, Mich. "There was no credit back in 1993. In 1995, banks, life insurance, pension plans -- all want to get into the market."
Detroit is perceived as desirable by outside investors because the market is not overbuilt like Chicago or parts of Texas and California, he says.
In a more conservative vein, Alan Hayman of Hayman Co., in Troy, Mich., says the Detroit metro area "is enjoying a nice, orderly recovery."
The city, he says, hasn't enjoyed a good national reputation. But don't be fooled, Hayman says. Vacancy rates, rents and absorption here are comparable to other major metropolitan areas.
"Our capital sources are looking to find places to invest, and Detroit is among the areas being considered," says Roger Woolstenhulme, senior vice president, Trammell Crow Co., Southfield.
Woolstenhulme says he sees a stabilization in occupancies and rents across all product lines. "We're optimistic," he adds.
According to the first quarter report from Southfield-based Cushman & Wakefield of Michigan, the overall vacancy rate in the metro-Detroit office market was 17.5%. A year earlier it was 19.5% for the period. C&W defines the Detroit Metropolitan Statistical Area as 5,200 sq. miles of land with more than 56 million sq. ft. in 528 buildings. The first-quarter overall average rental rate was $15.24; Class-A space went for $21.52 per sq. ft.
Detroit's central business district continues to lag behind more popular suburban office markets where direct vacancy rates are as low as 7.6%, says the C&W report. There's 3.1 million sq. ft. of office space available in the central business district, and another 6.65 million sq. ft. unoccupied in nine buildings surrounding the city. Total office space in C&W's DMSA is 56 million sq. ft.
Rents in specific markets ranged from the overall average rental rate of $12.86 per sq. ft.) to an overall average rental rate of $19.04 in the posh Birmingham/Bloomfield Hills market ($23.48 per sq. ft. for Class-A space).
Troy, a desirable and active city north of Detroit, has the third-largest office market in the area. It has made a good recovery since the early-1990s, when office space vacancies appeared to outnumber leases. The Somerset Collection and Kmart World Headquarters are nextdoor neighbors along Big Beaver Road in Troy. Somerset is in the process of expanding across Big Beaver. The new Somerset North, a $200 million, 130-store expansion, is scheduled to open in 1996. It should attract both customers and additional business to the already-congested area.
"Big Beaver will be The Boulevard in Detroit," says Alan M. Kiriluk, president, Kirco Management Services Ltd., Troy. Kiriluk says when completed the six-lane road, with first-class landscaping and custom signage, will help expedite traffic to proposed new office sites. The elegant 14-story Columbia Center building will soon be joined by a four-story phase III building, followed by a twin 14-story phase II office building, he says.
Observers say General Motors, which rents considerable office space throughout Troy, may be consolidating its resources, moving everyone out to Pontiac in a kind of Tech Center II (the original GM Technical Center is in Warren). General Motors already has marketing and manufacturing offices in Pontiac. That older automotive city, which has been bypassed by much new growth, has been chosen by developer Robert Sosnick (REDICO Corp., Southfield) as the site for a 5,000-seat performing arts center, 12-story/300-room hotel and 60,000 sq. ft. of upscale shopping, with a total pricetag of some $50 million.
The First National Building in downtown Detroit was rumored to be the object of a sale. The 773,000 sq. ft. stately high-rise was acquired by Equitable Life Assurance in a 1993 foreclosure. Assessed for tax purposes to $15 million, it could sell for as little as $13.5 million or as much as $27 million, observers say. HWRD Corp., of Parsippany, N.J., and Loeb Co., of New York City, were reported to be the interested parties. The building, which offers indoor parking, is 60% leased.
Tech center a major attraction
In Southfield, another high-rise, the American Center, had some good news. Chrysler Financial, already a tenant, signed an eight-year renewal for 175,000 sq. ft. (an increase from 160,000 sq. ft.) through the Lutz Companies. The Chrysler operation was reported to have been considering a move, perhaps to Auburn Hills where the splendid Chrysler Tech Center looms off I-75. It will occupy 10 floors of the 25-story American Center. Lutz says it also has a lease renewal here from the Michigan Court of Appeals for 33,500 sq. ft. and a 20,000 sq. ft. lease with Inter-Office. It is said that the Prudential Town Center is on the market, with 2 million sq. ft. of Class-A office space in Southfield.
FTD World Headquarters, a 120,000 sq. ft. building in Southfield, may come on the market, should the flower delivery specialists move to Chicago or Boston. Trammell Crow manages the highly-visible building and says it will manage the sale in the case of a move.
Strong demand for space has stimulated the industrial real estate market to the point where there is even some building on spec as well as build-to-suit. The Cushman & Wakefield of Michigan report says combined leasing and sales activities were up 20% in the first quarter of this year compared with the final quarter of 1994. Leases accounted for 3.3 million sq. ft.; there were 1.4 million sq. ft. in sales. More than half the activity was in western Wayne County and in Macomb County.
"The 'for rent' signs are coming down," says Lutz. "We're seeing not only a surge in new construction, but some industrial parks that have been idle since the late-1980s now are being used," he says. "There's actually a shortage of developed lots for building plants." Livonia is strong in Wayne County and Chesterfield Township at the northern edge of Anchor Bay is hot, Lutz says.
Asking lease rates and sales prices were up in the first quarter for all building classes and property types. Of total available square feet in industrial and warehouse, each had about 10 million sq. ft. and high-tech had 2.9 million sq. ft.
Hotels check in with better numbers
Record new vehicle sales in 1994 and continued strength in the auto industry this year have contributed to a good business climate and increased business travel. That, plus an uptick in convention traffic, has been good news for hotels. Hoteliers say 1994 was their best year in seven years with high occupancy rates and financing once again available.
"We had an orgy of building in the 1980s which gave us an oversupply of rooms," says Lawrence D. Hadley, president, Hadley & Associates, Southfield. New construction may even occur, he says.