Detroit Office Market

RESEARCH 2Q 2018 DETROIT OFFICE MARKET

FORD LATEST COMPANY TO CURRENT CONDITIONS

MAKE MAJOR INVESTMENT Metro Detroit’s office vacancy rate fell 50 basis points to 15.6% during the INTO DETROIT CBD second quarter of 2018, as just over 848,000 square feet was absorbed. Metro Detroit’s office vacancy rate fell 50 basis points to 15.6% during the The Detroit Central Business District continues its historic trend of growth. second quarter of 2018, as just over 848,000 square feet was absorbed. The Detroit Central Business District continues its historic trend of growth, as Ford Motor Company announced major investments into the city that include the In the suburbs, quarterly absorption was bolstered by United Shore’s move purchase of Michigan Central Station. In the suburbs, quarterly absorption was into its new, 638,000-square-foot headquarters at 585 South Boulevard bolstered by United Shore’s move into its new, 638,000-square-foot in Pontiac. headquarters at 585 South Boulevard in Pontiac. MARKET ANALYSIS Detroit CBD Asking Rent and Availability After 24 consecutive quarters of growth that produced over 2.6 million square feet of positive absorption and thousands of new employees, the migration of firms into Detroit’s CBD shows no sign of letting up. The trend that started and $21 28.0% grew as companies such as Quicken Loans, Blue Cross Blue Shield, Little $20 25.4% Caesars, Google, Inc., Meridian Health and Microsoft became a major $19 22.8% presence in the CBD continues, as Ford Motor Company announced the $18 20.2% purchase of the iconic Michigan Central Station. Built in 1913 as a railroad passenger hub, the 500,000-square-foot, 18-story structure sat mostly $17 17.6% vacant for 30 years and became a metaphor for Detroit’s urban decay. $16 15.0% Purchasing the Michigan Central Station allows Ford to brand itself in the 2Q08 4Q08 2Q09 4Q09 2Q10 4Q10 2Q11 4Q11 2Q12 4Q12 2Q13 4Q13 2Q14 4Q14 2Q15 4Q15 2Q16 4Q16 2Q17 4Q17 2Q18 Motor City and capitalize on the growing energy and skilled labor pool being Average Asking Rent (Price/SF) Vacancy (%) drawn into the city. By 2022, Ford plans to renovate and redevelop the area into a 1.2 million-square-foot campus that will eventually be home to 2,500 Net Absorption (SF, Millions) employees. Ford’s development comes on the heels of other major developments underway in Detroit. Little Caesars is nearing completion of its 1,000 $150.0 million, nine-story, 234,000-square-foot world headquarters at the 700 corner of Woodward Avenue and Columbia Street. Construction on what will 400 be Detroit’s tallest skyscraper is underway at the former Hudson’s Department 100 Store site. The nearly $1.0 billion construction project, which is being -200 developed by Bedrock, will feature residential units and retail space along with -500 an estimated 263,000 square feet of office space. In the New Center area, the 2Q08 4Q08 2Q09 4Q09 2Q10 4Q10 2Q11 4Q11 2Q12 4Q12 2Q13 4Q13 2Q14 4Q14 2Q15 4Q15 2Q16 4Q16 2Q17 4Q17 2Q18 290,000-square-foot Albert Kahn Building and 634,000-square-foot Max M. Fisher Building, built in the 1930s, are getting a $100.0 million renovation. The MARKET SUMMARY 300,000-square-foot former Detroit Free Press building is undergoing Current Prior Year Ago 12 Month renovations that will turn the building into a mixture of office, retail and Quarter Quarter Period Forecast residential uses. Other companies expanding in the CBD include LinkedIn, Total Inventory 75.6 MSF 75.0 MSF 75 MSF é which announced that it will open a larger office in the Sanders Building on Vacancy Rate 15.6% 16.1% 17.2% é Woodward Avenue for the company’s 40 employees. RSM US LLP is planning Quarterly Net Absorption 848,358 529,794 (143,348) ê an expansion from 40 employees to 120 employees in the Chrysler House on Griswold Street over the next three years. In the New Center area, Tata Average Asking Rent $19.43 $19.36 $19.23 ê Technologies is planning relocating its headquarters from Novi to 6001 Cass Under Construction 236 KSF 236 KSF 0 é Avenue in the New Center area. The company’s 150 employees are scheduled Deliveries 91 KSF 0 0 é to complete the move in early 2019.

Southfield The jump in available sublease space was largely due to Beaumont Southfield’s office market vacancy rate fell 10 basis points, as just over Hospital’s relocation from Troy to First Center Office Plaza in 20,000 square feet was absorbed during the second quarter. The Class Southfield. Despite the increase in sublease space, the Class A market A vacancy rate fell 20 basis points to 17.2% during the second quarter, has posted just over 45,000 square feet of positive absorption year-to- as just over 16,000 square feet was absorbed. Year-to-date absorption date. Much of the absorbed space came from the PNC Center during totaled 130,000 square feet because of a strong first quarter that saw the first quarter, as Tata Consultancy Services and Ellis Porter PLC the absorption of 113,000 square feet. During the first quarter, office leased 30,000 square feet. The Class B vacancy rate fell 100 basis complexes saw new leases from companies such as Mortgage Center, points to 22.3% during the second quarter, as just over 90,000 square LC, MSX International, Inc, Group Associates, Inc. and AmWins Access feet was absorbed. The bulk of Class B absorption during the quarter Insurance Services LLC totaling over 40,000 square feet. The Southfield was from small office users in Troy Place, Sheffield Office Park and the Town Center complex also saw an increase in leasing activity, as City Center Building. Year-to-date, the Class B market has absorbed companies such as the Society of Manufacturing Engineers (SME), just over 154,000 square feet. Coupled with a strong second quarter, Bejijn Bieneman PLC and SHI International signed new leases. the first quarter saw tenants such as Trion Solution and Konica Minolta Meanwhile, the Class B vacancy rate fell 100 basis points to 24.2% Business Solutions sign large leases at City Center and the PentaCentre during the second quarter, as nearly 30,000 square feet was absorbed. on Big Beaver Road. . The Bingham Office Park saw new leases from The Money Source Inc. and various other smaller office users. Year-to-date, Southfield’s Class Farmington Hills B market has posted just over 62,000 square feet of positive The Farmington Hills office vacancy rate held at 11.9% during the absorption. The main contributor was ConcertoHealth Inc., which second quarter, as new leases offset new vacancies. Smaller office relocated from Detroit to 18,000 square feet at the Southfield Centre on requirements made up the bulk of leasing activity during the quarter, as Nine Mile. companies such as Wells Fargo Bank took 5,400 square feet at Orchards Corporate Center II on Stansbury Boulevard and various Troy tenants took 7,600 square feet at the Metrobank Building on Grand Troy’s office market vacancy rate fell 80 basis points to 18.5% during River Avenue. Year-to-date, the Farmington Hills submarket has the second quarter, as just over 110,000 square feet was absorbed. GP absorbed just over 28,000 square feet. The lion’s share of this Strategies Corporation’s 54,000-square-foot lease at Troy Place on Big absorption came from the Class A market and Flextronics America, Beaver Road was one of the submarket’s largest deals. The complex LLC’s expansion in the first quarter of 60,000 square feet in the signed various other deals during the second quarter, including an Orchards Corporate Center. The Class A vacancy rate ended the second 8,000-square-foot lease by Dynamic BDC. Troy’s Class A market quarter at 12.6%, down from 13.3% at the beginning of the year. There vacancy rate increased 100 basis points to 9.8% during the quarter, as was less activity in the Class B market, which has had a vacancy rate 35,000 square feet of new vacancies came on the market. Meanwhile, less activity as the vacancy rate has held steady at 11.2% over the past the amount of Class A sublease space increased from 37,000 square two quarters. feet to over 153,000 square feet. Both 750 Stephenson Highway and PNC Center on Big Beaver Road posted over 70,000 square feet of available sublease space.

SUBURBAN VS DETROIT CBD VACANCY BY SUBMARKET

Vacancy Rate ($/SF) Vacancy Rate (%)

30.00% 36% 25.00% 20.00% 30% 15.00% 25% 10.00% 19% 5.00% 14% 0.00% 8% 2Q08 2Q09 2Q10 2Q11 2Q12 2Q13 2Q14 2Q15 2Q16 2Q17 2Q18 Novi Troy Livonia Pontiac Dearborn Southfield Suburban Detroit CBD CBD (Overall) AuburnBirmingham Hills Bloomfield Hills Suburban Total Birmingham CBD Farmington Hills West Bloomfield Ann Arbor (Overall)

Livonia Ann Arbor Livonia’s office market vacancy rate increased 70 basis points to Ann Arbor’s overall office vacancy rate fell 40 basis points to 6.3% 12.5% during the second quarter, as just over 17,000 square feet of net during the second quarter as just over 16,000 square feet was vacancy space came on the market. Eastern Michigan University’s absorbed. The bulk of absorption came from the Briarwood corridor. move out of the Cambridge Center on Six Mile Road accounted for the One of the largest deals in the Briarwood corridor was Wacker Chemical bulk of negative absorption and added a 20,000-plus-square-foot block Corporation 11,000-square-foot lease at 1101 Technology Drive. Year- of space in the office building. Negative absorption was somewhat to-date, the corridor has posted nearly 60,000 square feet of positive offset by various smaller office leases at Laurel Office Park I. Sluggish absorption. In Ann Arbor’s CBD corridor, vacancies increased slightly by leasing activity in Livonia’s Class A office market resulted in very little 20 basis points to 4.3% during the second quarter. Year-to-date, absorption year-to-date, although the vacancy rate has remained at a vacancies are up by just over 15,000 square; the bulk of which came healthy 3.3%. As a result of new vacancies during the second quarter, from the One North Main Building. In the Northeast corridor, the most of the 20,000 square feet the Class B market positively absorbed vacancy rate fell 10 basis points to 1.1% during the second quarter during the first quarter was returned to the market, leaving the Class B leaving the area at near full occupancy. Year-to-date, the Northeast vacancy rate essentially unchanged at 11.2% for the first half of corridor has recorded just over 20,000 square feet in the year. positive absorption.

Pontiac Pontiac’s office vacancy rate fell from 42.9% to 28.9% during the second quarter. The massive vacancy decline was the result of United Shore’s move into its new, 638,000-square-foot headquarters at 585 South Boulevard.

NOTABLE LEASE TRANSACTIONS

Tenant Building Submarket Type Square Feet

GP Strategies Corporation Troy Place Troy Direct 54,000 Mortgage Center, LC Travelers Tower I Southfield Direct 21,000 Tata Technologies 6001 Cass Ave New Center Direct 20,000 Group Associates, Inc. Travelers Tower I Southfield Direct 10,000 Dynamic Acquisition Troy Place Troy Direct 8,000

NOTABLE SALE TRANSACTIONS

Building Submarket Sale Price Price/SF Square Feet

26400 W 12 Mile R Southfield $16,200,000 $190.60 85,000 1985 W Big Beaver Rd Troy $6,000,000 $193.45 31,000 43494 Woodward Ave Bloomfield Hills $3,500,000 $101.16 35,000 41000 W 7 Mile Rd Northville $3,200,000 $118.74 27,000 18161 W 13 Mile Rd Southfield $1,250,000 $53.75 23,000

SUBMARKET STATISTICS

Total Under Total Qtr YTD Class A Class B Total Inventory Construction Vacancy Absorption Absorption Asking Rent Asking Rent Asking Rent (SF) (SF) Rate (SF) (SF) (Price/SF) (Price/SF) (Price/SF)

CBD 14,474,559 263,000 10.6% 46,103 121,269 $24.38 $20.48 $21.00

CBD North Central 1,523,952 X 27.1% 21,701 35,094 $X $18.04 $17.99

Detroit Total 15,998,511 263,000 12.2% 67,804 156,363 $24.38 $19.76 $20.54

Ann Arbor Briarwood 2,027,860 X 12.5% 16,980 59,105 $26.41 $19.86 $24.80

Ann Arbor CBD 1,404,669 X 4.3% -2,534 -15,581 $32.75 $26.16 $29.74

Ann Arbor Northeast 1,798,602 X 1.1% 2,112 20,739 $25.57 $22.20 $24.74

Auburn Hills 2,950,157 X 16.9% 5,904 115,323 $20.36 $17.98 $18.73

Birmingham 424,654 X 9.2% -1,000 -32,511 $43.20 $26.67 $40.19

Birmingham CBD 979,645 X 13.5% 3,694 -8,241 $32.47 $32.33 $32.39

Bloomfield Hills 3,030,134 X 7.5% 14,037 11,679 $25.40 $23.11 $23.97

Dearborn 3,193,219 X 26.7% 24,148 12,427 $19.02 $15.94 $17.34

Farmington Hills 6,157,143 X 11.9% 549 28,878 $20.03 $18.89 $19.17

Livonia 3,146,329 X 12.5% -19,430 2,087 $21.00 $19.73 $16.89

Novi 1,620,708 X 7.1% -76 11,541 $21.93 $19.05 $20.82

Pontiac 1,897,834 X 28.9% 619,754 619,754 $X $16.18 $15.88

Southfield 17,216,730 X 20.5 % 33,180 170,775 $21.61 $17.63 $18.29

Troy 13,262,852 X 18.5% 80,989 225,396 $24.85 $18.77 $19.66

West Bloomfield 557,771 X 6.0 % 2,247 418 $22.00 $16.79 $18.56

Suburban Total 59,668,307 X 16.6 % 780,554 1,221,789 $22.44 $18.41 $19.18

Totals 75,666,818 263,000 15.6% 848,358 1,378,152 $22.73 $18.64 $19.43

ECONOMIC CONDITIONS EMPLOYMENT BY INDUSTRY

Metro Detroit unemployment levels continue their downward trend. The Detroit MSA, June 2018 latest figures showed hovering at 3.6% in May compared to 4.9% at the beginning of 2018. Metro Detroit unemployment levels were also on par Detroit MSA June 2018 with national rates and declined at the same rate from the January Total Nonfarm 4.7% 4.9% 2018. Payroll employment for Metro Detroit showed a 1.6% gain over Mining & Logging & Const 2.0% the same period last year. Those figures also mirrored gains nationally. 7.8% Manufacturing Construction saw the greatest employment gains in Metro Detroit as 10.0% 50.0% Trade, Transportation, and the industry grew by 7% from the same period last year. This figure is Utilities consistent with the significant rise in development activity across Information 2.8% Financial Activities Metro Detroit have the past 12 months. 0.7% 9.3% Professional and Business 6.1% Services Education and Health Services 1.7% Leisure and Hospitality

Source: U.S. Bureau of Labor Statistics

UNEMPLOYMENT RATE PAYROLL EMPLOYMENT

Not Seasonally Adjusted Total Nonfarm, Not Seasonally Adjusted, 12-Month % Change

Seasonally Adjustd Total Nonfarm, Not Seasonally Adjusted, 12-Month % Change 18.0% 5% 15.0% 2% 12.0% -1% 9.0% -5% 6.0% 3.0% -8% May-08 May-09 May-10 May-11 May-12 May-13 May-14 May-15 May-16 May-17 May-18 -11% May-08 May-10 May-12 May-14 May-16 May-18

United States Detroit MSA United States Detroit MSA Source: U.S. Bureau of Labor Statistics Source: U.S. Bureau of Labor Statistics

CONSUMER PRICE INDEX (CPI) EMPLOYMENT GROWTH BY INDUSTRY

All Items, 12-Month % Change, Not Seasonally Adjusted, Detroit June, 12-Month % Change, Not Seasonally Adj.

All Items, 12-Month % Change, Not Seasonally Adjusted, 1982-84=100 Detroit MSA, June 2018, 12-Month % Change, Seasonally Adjusted 7.0% Total Non-Farm Mining, Logging and Construction 5.0% Manufacturing Trade/Trans/Utilities 3.0% Information 1.0% Financial Activities Profess & Business Services -1.0% Edu & Health Services Leisure and Hospitality -3.0% Other Services Apr-08 Apr-10 Apr-12 Apr-14 Apr-16 Apr-18 Government United States Detroit MSA -1.0% 1.0% 3.0% 5.0% 7.0% 9.0% Source: U.S. Bureau of Labor Statistics Source: U.S. Bureau of Labor Statistics

JOHN DEGROOT Vice President, Research 248.357.6588 [email protected]

Newmark Knight Frank has implemented a proprietary database and our tracking methodology has been revised. With this expansion and refinement in our data, there may be adjustments in historical statistics including availability, asking rents, absorption and effective rents. Newmark Knight Frank Research Reports are available at www.ngkf.com/research

All information contained in this publication is derived from sources that are deemed to be reliable. However, Newmark Knight Frank (NKF) has not verified any such information, and the same constitutes the statements and representations only of the source thereof, and not of NKF. Any recipient of this publication should independently verify such information and all other information that may be material to any decision that recipient may make in response to this publication, and should consult with professionals of the recipient’s choice with regard to all aspects of that decision, including its legal, financial, and tax aspects and implications. Any recipient of this publication may not, without the prior written approval of NGKF, distribute, disseminate, publish, transmit, copy, broadcast, upload, download, or in any other way reproduce this publication or any of the information it contains.