Many cities in metro Detroit seeing low occupancy rates at offices as work-from-home remains

Work From Home
Posted at 5:44 AM, Jul 28, 2021
and last updated 2021-07-28 06:57:15-04

(WXYZ) — Rent is the second-highest cost for a business after payroll, and many employers in metro Detroit are considering allowing remote work permanently.

That move would have widespread impact on everything from traffic, to real estate, to parking structures and more.

Consulting firm McKinsey surveyed 278 executives nationwide last summer and found they plan to reduce their office space by an average of 30%.

Detroit and its suburbs like Southfield and Dearborn, along with nearby Ann Arbor, make up the largest office market in the state at 78.3 million square feet.

At the end of2020, metro Detroit office vacancy had risen to more than 16%, and as vaccinations increase, many might expect that number to shrink. Instead, it climbed to 22%.

The vacancy rate has been on a slow climb, partly because businesses have to sign leases ranging five to 10 years, which means landlords aren't huring too bad yet because they're still getting paid.

But as more and more companies are using less space, they are trying to sublease and that is increasing the vacancy

Steve Morris, managing principal at real estate services firm Axis Advisors, says that vacancy is actually good news for companies not currently committed to a lease.

"I let the landlord know, well if you can't lower the rent, then tenants are just going to move into a sublease for a lot less, so it helps tenants negotiate because there are a lot of voids in the area," Morris said.

In Ann Arbor, DTE has listed their downtown building for sale with permanent work-from-home a possibility for their employees.

Molina Healthcare sold its Troy headquarters after significantly downsizing their footprint.

According to the 2021 second quarter report released by real estate consulting firm JLL, some areas are doing better than others.

Royal Oak has a 5.7% vacancy rate for and is one of the most expensive places to lease an office. Detroit's office vacancy is at 14%.

"Downtown Detroit, 60% is owned by Bedrock, however they are investing a lot in those buildings and because of the quality of it they've raise the rents so the rental rate in the city is higher than in the suburbs," Morris said.

While rent in the suburbs is less the vacancy rate is higher. In Southfield, 31.8 percent of the offices are empty. In Dearborn, it is 34.3%

That could be in part due to the large buildings Ford owns that are currently on the market, after announcing permanent work-from-home options for employees.

Many suburban office spaces may not be full for some time, but many weren't full before the pandemic either.

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