Research & Forecast Report DETROIT & ANN ARBOR OFFICE Q1 2018

METRO DETROIT’S OFFICE BUZZ Amber Goodwin Senior Research Analyst | Detroit & Ann Arbor

The overall vacancy rate for the Metro Detroit office market ended in the first quarter at 9.9%, down thirty basis points since the fourth quarter 2017. Net absorption for the overall office market was MARKET INDICATORS Q4 2017 Q1 2018 positive 292,832 square feet. VACANCY

Much of the buzz around Metro Detroit’s office market has been NET ABSORPTION focused around the Central Business District and downtown area, but it’s time to take a closer look at the suburban market which has CONSTRUCTION been steadily improving for more than five years. The vacancy rate RENTAL RATE* is 10.1% in the first quarter 2018, down by one hundred-fifty basis *Asking Rents points from 11.6%, compared to one year ago. The vacancy rate in the CBD is even tighter at 8.6%. Lease rates are escalating at a higher rate in the CBD, with the average asking rental rate for Class A office space in the CBD at $24.41 per square foot, compared to $21.53 per square foot in the suburban market. These conditions are creating a healthy tenant demand in suburban municipalities 501 offering “urban-type” amenities such as restaurants, shopping, TOTAL OFFICE entertainment, transportation and affordable housing. As the shift toward mixed-use redevelopment and mixed-use new construction TRANSACTIONS continues, suburban areas are becoming more appealing and viewed as cooler places to live and work and Detroit’s neighboring suburbs are garnering the attention of companies looking to expand or relocate outside of downtown if the vibe feels right, the rent is fair, 2,499,177 and the parking is free. This quarter, ConcentroHealth moved from Detroit’s New Center One building to Southfield to accommodate SQUARE FOOTAGE growth. They now occupy 15,493-square-feet at 18000 W Nine Mile, Southfield. DesignHaus choose downtown Auburn Hills to build IN DEALS their new $2.5 million, 25,000-square-foot mixed-use headquarters *SALE & LEASE TRANSACTIONS, Q1 2018 building, restaurant and loft space. The Southfield Town Center is nearing completion of renovations to its 2.2 million square foot campus. The new collaboration areas and green spaces as well as improved entry way, conference area, and expanded parking help to create an appealing alternative for offices users looking outside downtown.

OCCUPANCY RATE OVERALL MARKET Notes on the Market CLASS A & CLASS B RENTS The overall asking rental rate in the Metro Detroit office market is $19.03 per square foot, compared to $19.20 per square foot in the fourth quarter 2017. The average quoted rental rate for Class A is $21.75 per square foot. Class B rental rates came in at $18.73 per square foot in the first quarter 2018, no change from the fourth quarter 2017. The overall office asking rental rates are 2.48% higher in the CBD compared to the suburbs; coming in at $21.34 in the CBD and $18.86 in the suburbs.

OVERALL VACANCY DECREASES The office vacancy rate in the Metro Detroit office market decreased by thirty basis points, with an overall vacancy of 9.9% compared to 10.2% at the end of the fourth quarter 2017. Net absorption was positive, with 292,832 square feet absorbed in the first quarter. The overall vacancy in the CBD is 8.6%. The suburban office market posted a vacancy of 10.1% in the first quarter 2018. Tenants moving out of large blocks of space include Thomas Reuters moving out of TOTAL SUBURBAN CBD 40,648 square feet at 5400 Data Court in Ann Arbor and CoreSource moving out of 24,700 square feet at Liberty Professional Center in Sterling Heights. Tenants moving into large blocks of space include QUOTED RENTAL RATES Microsoft Technology Centers moving into 43,794 square feet at One OVERALL MARKET Campus Martius and Google moving into 30,085 square feet at 52 E Henry Street, which is adjacent to Little Caesars Arena.

SALES / LEASES In the first quarter 2018, there were 65 office sales totaling 687,875 square feet, with an average sale price of $83 per square foot. In Auburn Hills, Bridge Commercial Real Estate invested in a 14-property portfolio including 2 buildings located in Auburn Hills. 1075 W Entrance Drive was purchased for $70.69 per square foot and is 100% leased while 900 N Squirrel was purchased for $92.47 per square foot and the building is 62% leased. TOTAL SUBURBAN CBD

Leasing activity occurring in the first quarter accounted for 1,811,302 square feet. The gross starting rent averages $21.04 per square foot. NOTABLE OFFICE DEALS Henry Ford Health Systems signed the largest lease this quarter for LEASES 276,250 square feet at 1414 E Maple Road. This building was vacated by PROPERTY CITY SIZE OF DEAL TENANT NAME United Shore Financial Services which is relocating to Pontiac this year. SUBMARKET Troy Henry Ford Health 1414 E Maple Road 276,250 Health Alliance Plan announced they plan to relocate from Southfield, Suburban Systems 1414 E Maple Road Troy Health Alliance Plan also to 1414 E Maple Road and will lease 165,000 square feet. In 165,750 Farmington Hills, Meritus Property Management took 20,045-square- Sublease Suburban of Michigan Dearborn Jackson Dawson 1 Parklane Boulevard* 68,305 feet office space located at the Tri-Atria Office Building. Ulliance, Inc. Suburban Communications, Inc. recently leased 15,529 square feet at 900 Tower Drive in Troy and in 27755 Stansbury Farmington Hills Flextronics 34,936 Dearborn, Jackson Dawson Communications signed a lease renewal for Boulevard Suburban International Romulus 9401 Harrison Street 31,873 Office Depot Inc. 68,305 square feet. Suburban

*Lease Renewal

CONSTRUCTION SALES PROPERTY CITY SIZE OF BUYER NAME PRICE The Metro Detroit office market delivered six buildings totaling SUBMARKET DEAL 1075 W Entrance Auburn Hills Bridge Commercial 210,000 $70.69 58,230 square feet of new construction in the first quarter. There is Drive* Suburban Real Estate currently 1,673,811 square feet under construction at the end of the Auburn Hills Bridge Commercial 900 N Squirrel Road 128,859 $92.47 first quarter. There is 1,000,000-square-feet under construction Suburban Real Estate 2211 E Jefferson Detroit Princeton Real throughout the suburban office market area. However, the largest 76,892 $50.72 construction development projects are located in downtown Detroit. Avenue E of Woodward Estate Auburn Hills Livermore Software 3201 University Drive 55,528 $99.05 Suburban Technology Corp

*Portfolio Sale

2 Detroit & Ann Arbor Research & Forecast Report | Q1 2018 | Office | Colliers International OFFICE MARKET > Q1 > 2018 BY THE NUMBERS

TOTAL OFFICE MARKET STATISTICS SUBURBAN CBD TOTALS CLASS A OFFICE MARKET STATISTICS SUBURBAN CBD TOTALS

EXISTING NUMBER OF BUILDINGS 11,331 157 11,488 EXISTING NUMBER OF BUILDINGS 218 16 234 INVENTORY TOTAL INVENTORY 190,543,558 25,896,964 216,440,522 INVENTORY TOTAL INVENTORY 42,292,273 7,483,488 49,775,761 DIRECT SF 18,711,474 2,162,145 20,873,619 DIRECT SF 5,090,157 511,645 5,601,802 VACANCY TOTAL SF 19,199,808 2,216,398 21,416,206 VACANCY TOTAL SF 5,354,153 563,866 5,918,019 VACANCY % 10.1% 8.6% 9.9% VACANCY % 12.7% 7.5% 11.9% YTD NET ABSORPTION 471,692 (178,860) 292,832 YTD NET ABSORPTION (51,524) (17,957) (69,481) YTD DELIVERIES 58,230 0 58,230 YTD DELIVERIES 0 0 0 UNDER CONSTRUCTION SF 1,073,811 600,000 1,673,811 UNDER CONSTRUCTION SF 397,240 600,000 997,240 QUOTED RATES $18.86 $21.34 $19.03 QUOTED RATES $21.53 $24.41 $21.75

CLASS B OFFICE MARKET STATISTICS SUBURBAN CBD TOTALS CLASS C OFFICE MARKET STATISTICS SUBURBAN CBD TOTALS

EXISTING NUMBER OF BUILDINGS 3,679 82 3,761 EXISTING NUMBER OF BUILDINGS 7,434 59 7,493 INVENTORY TOTAL INVENTORY 95,928,787 15,628,865 111,557,652 INVENTORY TOTAL INVENTORY 52,322,498 2,784,611 55,107,109 DIRECT SF 10,516,457 1,383,933 11,900,390 DIRECT SF 3,104,860 266,567 3,371,427 VACANCY TOTAL SF 10,705,894 1,385,965 12,091,859 VACANCY TOTAL SF 3,139,761 266,567 3,406,328 VACANCY % 11.2% 8.9% 10.8% VACANCY % 6.0% 9.6% 6.2% YTD NET ABSORPTION 560,949 (169,781) 391,168 YTD NET ABSORPTION (37,733) 8,878 (28,855) YTD DELIVERIES 58,230 0 58,230 YTD DELIVERIES 0 0 0 UNDER CONSTRUCTION SF 676,571 0 676,571 UNDER CONSTRUCTION SF 0 0 0 QUOTED RATES $18.60 $20.21 $18.73 QUOTED RATES $15.43 $18.33 $15.53

3 Detroit & Ann Arbor Research & Forecast Report | Q1 2018 | Office | Colliers International CONSTRUCTION CONT. A 1,000,000-square-foot mixed-use development, including 366,000-square-feet of office space, is currently under construction at the site of the former J.L. Hudson’s located at 1206 Woodward Avenue. In The District Detroit, a 234,000 square foot facility will be the future home of Little Caesars Headquarters.

2018 REVIEW

»» Metro Detroit’s office market holds steady 2018 STATISTICS »» Suburbs gain attention, especially in downtown areas

»» There are great opportunities for competitive deals to be considered in the suburbs

2018 OUTLOOK

»» The CBD continues to make gains however tough to enter these markets without paying a premium and waiting for space

»» Suburban areas attract tenants

»» New construction on the rise in downtown and suburban areas – affinity for mixed-use live/work space

»» Occupancy to remain at peak levels with rents holding firm COLLIERS INTERNATIONAL INTERNATIONAL COLLIERS

All statistics are for 2018, are in U.S. dollars and include affiliates.

FOR MORE INFORMATION Paul Choukourian, CCIM Amber Goodwin Executive Managing Director Senior Research Analyst Detroit & Ann Arbor Detroit & Ann Arbor +1 248 540 1000 Ext. 1622 +1 248 540 1000 Ext. 1624 [email protected] [email protected]

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