Downtown Detroit had a strong start to 2019 with positive absorption and over 2.1 million sq. ft. of office space under construction. Office development has not exceeded 2 million sq. ft. in Metro Detroit in nearly 20 years.
With 17 million sq. ft., the Downtown Detroit office submarket is the largest submarket in Metro Detroit by total existing inventory. In Q1 2019, Downtown Detroit comprised over 21% of the total Metro Detroit office market. With over 6.8 million sq. ft. of Class A space, Downtown Detroit accounted for over 22% of all Class A space in the Metro Detroit market. At the end of Q1 2019, the average asking lease rate for Class A space in Downtown Detroit was $23.63 per sq. ft. gross, $2.03 higher than the average asking rate for Class A space in the suburbs.
In Q1 2019, Downtown Detroit’s vacancy rate was 12.4%, while the suburban market had an overall vacancy rate of 14.6%. Year-over-year, the vacancy rate in Downtown Detroit decreased by 18 basis points (bps). Suburban vacancy rate was 15.2% at the end of Q1 2019, decreasing by 164 bps year-over-year. Detroit has historically maintained higher vacancy rates than the suburban office market. However, since 2010, annual absorption has remained positive, and vacancy has declined dramatically.
With over 2.3 million sq. ft. of net positive absorption since 2010, Downtown Detroit has started demanding higher lease rates than most of Detroit’s suburban submarkets. At $21.46 per sq. ft. gross at the end of Q1 2019, Downtown Detroit asked $3.14 more than the suburban average asking lease rate.