During the '80s and '90s, Detroit struggled to keep its office tenants in the city and many of its major office buildings went vacant. For a city of its size, downtown Detroit was notoriously moribund. By comparison, the suburbs experienced an office boom, as multi-million-square-foot office
buildings and
parks were constructed in cities like Southfield and Troy. Often, these suburban office buildings absorbed tenants that had departed Detroit.
For the first time in years,
this trend appears to be reversing. According to the first quarter 2015 Newmark Grubb Knight Frank (NGKF)
office market report, Detroit's central business district vacancy rate has dropped 15% in just four years' time, going from "the worst rate in the nation at 35.4%," to one of the strongest in the region.
Some of these newer downtown tenants are not new businesses, but established ones that have relocated from Detroit's suburbs. Most notably, Fifth Third Bank and Blue Cross Blue Shield moved from Southfield into their downtown offices.
One of the more recent companies to relocate is
reach | influence, an independent retail service provider. The growing marketing analytics firm moved from its Royal Oak office in early April to the
M@dison Building, a Class-A office building managed by a Bedrock Real Estate whose tenants are primarily tech startups.
"It's been a great move for us," says Susan Dettloff, reach | influence's marketing director. "We're still growing our business, and it's helpful to be surrounded by other companies who can be an asset to what we're trying to build. It's a close knit group."
The community and building offer a lot. Dettloff mentions that tenants share resources and help each other with recruiting. The design and amenities at the M@dison typify that of a progressive office. Gone are the white walls, drop ceilings, cubicles, and water cooler. In their place are color-themed floors (reach | influence's is orange), exposed brick and piping, dry erase paint walls, bean bag chairs, standing desks, conference rooms with nicknames like "the studio" and "the workroom," wall-mounted televisions, and a fully-stocked kitchenette with a slurpee machine.
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Outside the building, Detroit has the inherent advantage of having a recreational environment at hand. "Live, work, play" -- the idea that an employee has lifestyle options accessible without the need for a car -- has gained traction amongst today's office workers.
"'Live, work, play' is a big factor in all major markets," says Andy Gutman, President of the brokerage firm
Farbman Group. "There's been a greater desire to be a part of an urban setting where you can walk to work, walk around city. That's definitely been driving some of the new tenants."
The NGKF numbers demonstrate that this turnaround happened with incredible swiftness. That's largely due to Dan Gilbert, chairman and founder of Quicken Loans and Rock Ventures, the latter of which has purchased, renovated, and populated numerous Class-A office buildings downtown.
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Reach | influence is one such business that's been drawn by Gilbert's pull. In addition to being in the M@dison, handsomely renovated and managed by Gilbert's Bedrock Real Estate,
it was also given $5 million in funding by
Detroit Venture Partners, of which Gilbert is a partner. Through great capital investment, Gilbert has been the single greatest contributor to downtown's decline in office vacancy.
"Dan Gilbert has had a tremendous impact on the market," says Gutman. "Bedrock's developments, the upgrades to their buildings, has really contributed to the 'coolness' factor happening in Detroit right now."
Can suburbs compete?
If Detroit is indeed pulling business from the suburbs, Troy and Southfield are the two cities with the most to lose. They were the biggest builders during the office real estate boom and, as such, have the highest regional vacancy rates since the 2008 economic downturn, both sitting just below 25 percent.
Troy City Manager Brian Kischnick acknowledges the importance of "live, work, play" to all of today's office workers. "It's something we've spent lot of time talking and thinking about," he says. The city is currently implementing the
"Move Across Troy" initiative, which aims to improve pedestrian access between the office buildings around the city's multi-lane thoroughfare, Big Beaver Road, and businesses in nearby strip malls and Somerset Mall. The initiative also proposes to construct a trail and pathway system starting at Troy's Civic Center.
The City of Southfield put forth a similar initiative, "
The Southfield Non-Motorized Pathway and Public Transit Plan." In its report, the authors state that "the auto centric design of the 1960’s and 1970’s provided the connections needed for car travel, but did not provide the infrastructure network for pedestrians, bicycles, and transit." They go on to propose trails, intersection ramps, and improved wayfinding signage, among other improvements.
"Southfield has been really proactive," says Gutman. "They've had one of the more committed governments in the region."
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Andy Gutman
While there may be a few notable examples of companies relocating from the suburbs to the city, in most cases, the makeup of a company determines where it will locate. "The markets are different," says Kischnick. "There's attributes that either make sense for your company or don't." He cited readily available parking and a strong public school system as advantages Troy has in its favor. Gutman notes that it's easier to accumulate significant square footage on one floor and at a lower rate in the suburbs.
Detroit's office real estate market is improving, but so are the suburban markets. If Detroit is poaching businesses from the suburbs, they're finding replacement tenants, and then some. According to the NGKF report, "Southfield's vacancy rate is now at a seven-year low" and "Over the past two years, Troy's vacancy rate has fallen 5.3 percent."
For these reasons, Kischnick and Gutman downplay regional competition. "I think it's all positive," says Gutman. "With a healthy Detroit market, the suburbs are more likely to be healthy."
"We're all part of southeast Michigan," says Kischnick. "We all want the city and region to do well."
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Aaron Mondry is a Detroit-based freelance writer. Follow him on Twitter @AaronMondry.