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Allan

Office vacancy rates rise

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Ok, I don't understand this quote

The vacancy rate for downtown Detroit stood unchanged at 29.3 percent for the quarter, signaling that more firms continue to leave downtown for the suburbs than do the opposite.
If the vacany rate is UNCHANGED, how does that mean that more offices are moving out of downtown than in to it?

Office vacancy rates rise

First-quarter numbers show growing slump

May 5, 2004

BY JOHN GALLAGHER

FREE PRESS BUSINESS WRITER

The already slack Detroit-area office market grew even weaker during the first three months of this year, a new survey of the region's office space has found.

Southfield-based Grubb & Ellis, a real estate brokerage, reported that the vacancy rate for metro Detroit office buildings edged up five-tenths of a percentage point during the first quarter to 20.6 percent. As recently as two years ago the vacancy rate was only 15 percent.

In a report titled "It's Still a Tenant's Market," the company reported that "the metro Detroit economy seems to have hit a bump during the first quarter."

The slump in demand for office space has continued for at least three years. It stems from the weaker economy of the past few years, the bursting of the technology bubble three years ago, and particularly from the soft jobs market.

Joel Feldman, president of First Realty Co. of West Bloomfield, a broker and real estate consultant, said an upswing in hiring will be needed to bolster demand for office space.

"That's the key," he said. "Until such time as we see a very significant increase in jobs, the office market will continue at best to tread water."

Hiring is important because a common assumption among brokers holds that each office worker needs 200 square feet of space on average. That includes a desk area, plus a share of the hallways and service and other areas. Companies that aren't hiring just need less space.

A secondary reason why demand for office space has remained limp is that companies have been rethinking the traditional office layout. The trend has seen companies reducing the size and number of private offices in favor of open-plan offices where everyone gets a cubicle.

Soft demand for office space puts pressure on landlords and their lenders, but it creates an opportunity for tenants.

"Certainly in the vast majority of instances, the playing field is highly skewed in the favor of the tenants," Feldman said. "It's somewhat analogous to the auto industry. There's some great deals out there."

Among specific submarkets, Southfield's office vacancy rate rose one percentage point to 19.6 percent from the previous quarter, while the rate in Troy stood at 21.4 percent, down one-tenth of a point from the previous quarter. Historically, Troy has ranked among the strongest markets, with vacancy rates at less than 10 percent, but things turned sharply worse beginning in late 2001.

The vacancy rate for downtown Detroit stood unchanged at 29.3 percent for the quarter, signaling that more firms continue to leave downtown for the suburbs than do the opposite.

On a more positive note, Feldman and other brokers said more firms are signing leases for big blocks of space. But those deals haven't been large or numerous enough to dent the rising vacancy rate.

Contact JOHN GALLAGHER at 313-222-5173 or [email protected]

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