Regional Solutions for the New Future of Southeast Michigan
The New Future
The COVID-19 pandemic accelerated many of changes and transformations of our economy, the way we live, shop, and work. It is redefining our relationship with office and commercial space. This page provides an overview of what we have seen in data, heard from regional conversations, challenges ahead, recommendations for the future, and resources to support your work.
Learn more about SEMCOG and MAC's New Future of Southeast Michigan series here, with topics covering parks, trails, and recreation, travel and mobility, remote work and education, healthcare, education and workforce, water infrastructure, government operations, and broadband.
There are approximately 1.7 million buildings in SEMCOG’s Buildings Database. The accompanying tool is a part of the 3D model of this database. It shows downtown Detroit and surrounding areas. The red buildings are office and retail buildings, which are the focus of this conversation. We analyzed building size, location, value, vacancy, and when buildings were built, demolished, or rebuilt, to understand history, trends, and development changes over time. (Full-screen version of the tool)
For example, from left to right, we see that number of school buildings, retail stores, and offices demolished since 2010 has exceeded the number of new buildings constructed. But construction of warehouses, medical facilities, assisted living, eating and drinking places outpaced demolition. These changes are driven by economics, demographics, and our lifestyle changes, such as the growth of e-commerce and the aging population. Our reports on residential and non-residential development also provide detailed recent data and analysis.
Chart displaying numbers of nonresidential buildings built in Southeast Michigan from 2010-2020 by category.
Remote Work and E-Commerce
In 2019 only 4.5% of workers regularly worked from home in Southeast Michigan. It reached 54% last summer, twelve times the share seen in 2019. As workers are gradually returning to the workplace, that number has decreased to 32%, still much higher than 16 months ago. Of course it varies greatly by industry, as the next chart will show.
Many more workers work from home in information technology than in manufacturing. More information and analysis can be found in SEMCOG’s Quick Facts on remote work.
Meanwhile, the change of how we shop also accelerated. U.S. e-commerce sales increased by over 30% last year. About 20% of total U.S. retail sales are through Internet now, the highest ever recorded.
Impacts on Office and Commercial Space
What does the pandemic, remote work, and e-commerce mean for the future? What will stick with us in the long term. There are many uncertainties. But we are learning a great deal from our analysis, conversations, and survey research results. A survey from Business Leaders for Michigan found that 62% of respondents expect to keep their real estate footprint about the same over the next year. But 27% plan to reduce their footprint. Yet 8% anticipate increasing footprint. That is at least in part because more square feet per worker are likely needed for health reasons. A PricewaterhouseCoopers (or PwC) survey shows that more than half of respondents believe their company is moving towards a hybrid office. Remote work is typically more important to young workers and new talent than older generations. The majority of companies surveyed are expecting to change their real estate strategies. For example, 61% want to consolidate space to one location, yet others consider opening satellite offices in strategic locations. Other surveys found many people may visit fewer retail stores. And demand for modern warehousing and distribution centers is very high (see Resource Library for additional information).
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Community Conversation
What We Heard - Community Presentations
The leaders of several Southeast Michigan governments and organizations presented on the changes they expect to see in office and commercial space in Sotheast Michigan. They include:
Eric B. Larson, Chief Executive Officer, Downtown Detroit Partnership
Glenn Lapin, Economic Development Specialist, City of Troy
Portrait of Eric Larson alongside Downtown Detroit Partnership logo
Downtown Detroit Partnership
Downtown Detroit Partnership (DDP) is looking at real estate and the development landscape in a lot of ways moving forward from the pandemic. DDP focuses through a C-suite group of leaders, mostly corporate, philanthropic, and a little bit of public sector in the core of downtown Detroit covering 1.1 square miles.
DDP partners with others as activity radiates out through the spokes into other communities and other neighborhoods throughout the city but their focus is primarily in the downtown.
Dan Gilbert has had a major impact on the core of the city. The Rocket Companies has now stabilized to around 15,000 employees, with significant investment in the first 10 - 11 years of his involvement in downtown Detroit, investing over $5 billion and has moved our market faster than what would have occurred if it were purely market-driven investing.
Downtown Detroit Partnership (DDP) is looking at real estate and the development landscape in a lot of ways moving forward from the pandemic.
Downtown's Largest Employers
Rocket Companies: 15,250
City of Detroit: 9,094
U.S. Government: 6,352
Blue Cross Blue Shield of Michigan / Blue Care Network: 5,524
Ilitch companies: 5,340
General Motors Co.: 4,814
MGM Grand Detroit LLC: 2,308
Wayne County: 1,965
Ally Financial Inc.: 1,419
Strategic Staffing Solutions Inc.: 1,400
Deloitte LLP and its subsidiaries: 1,115
Source: Crain's Detroit Business, 2020 Book of Lists, July 2020.
Note: Some organizations have substantial numbers of employees wh o work in Detroit, outside of Downtown.
25% of Downtown employees are working from their offices (including employers not on the above list).
DDP Office Survey
During the pandemic only about 10% of the Downtown Detroit daytime work population was coming into work in any consistent manner – obviously those who were essential workers. DDP conducted a survey to determine what to expect in Downtown Detroit in the next six months to try to better understand both the leaders thought process in terms of return to work and also how DDP could support many of the activities.
Preliminary findings include:
Many organizations will have some portion of their workforce back in the office by end of summer, though remaining flexible.
By the fall many of these companies will be returning back to pre- pandemic averages in terms of both return to work but also corporate travel and activities such as conferences.
13 of the top companies at least 75 percent would be given the opportunity to work remotely.
Lots of conversation centers around a four-day work option that is flexible whether that be at home or at a different site.
92 percent of them will be have at least 50 percent of their employees working back at the office at any given time.
Organizations are watching obviously what happens both in terms of potential flare-up of variants to the virus but also just the overall government restrictions.
Preliminary Results: DDP Return to Office Survey
What to Expect in Downtown Detroit in the next six months
61 percent of companies will have workers return to the office in some capacity by July.
By fall, that number will rise to 93 percent.
Future of Work – Ernst & Young/Urban Land Institute Partnership Survey
Moving forward flexibility will continue to remain a main focus for employers and employees.
Investment in digital technology will continue to be important in how businesses operate.
Artificial intelligence and business automation will continue to expand.
Significant changes to the office real estate model; flexible office footprints and reduced space.
Real estate will continue to be under a fair amount of pressure in the short term and the public sector will need to continue to think about the impact on taxes and how services are funded.
Long term civic centers will play an important role providing amenities with collaborative spaces.
Remote work will make real estate more critical with a full ecosystem of collaborative places, healthy design, and keeping a corporate culture.
This past year real estate valuation in terms of market value in the downtown Detroit commercial properties reached a pretty significant growth milestone this past year – capped $4.6 billion. This was accomplished during a pandemic and is up from $2 billion from a decade ago.
Rents have also seen continue growth even through the pandemic, including continued growth in office rent, even with a reduced footprint.
Through the recovery retail sales have had a number of challenges, but have seen an uptick and are now back to pre-pandemic levels.
Hotels are operating at full-tilt; what’s impacting their occupancy levels is employment; it’s been very challenging attracting new employees.
DDP focused on creating an entire ecosystem that includes downtown Detroit public spaces and parks.
Portrait of Glenn Lapin alongside the logo of Troy, MI.
Quick facts – Troy
Largest city in Oakland County
Third largest city in the state based on property values; office and commercial properties have a great impact
Daytime population nearly doubles to approximately 172,000, patronizing businesses, retail shopping, and restaurants. While these areas have been impacted over the past 16 months, Troy remains a top retail and restaurant destination with new restaurants continuing to open up during the pandemic.
World headquarters for two Fortune 500 companies – Meritor and Kelly Services.
Major center for Automotive Research and Development, Engineering, Finance, Healthcare
Pretty much anything on your vehicle’s instrument panel and any of the vehicle’s functions was most likely developed from an engineering perspective in Troy.
Troy is a very diverse community in terms of its people and also the companies as well.
High-rise office building labeled "PNC Bank"
The office market has been impacted by the pandemic, but leases have helped keep things stabile.
Industrial space continues to be a very tight market; it’s extremely difficult finding industrial space.
Troy’s retail market trends during the pandemic have pretty much mirrored the rest of the region. Moreover, the increasing share of online purchases that was seen prior to the pandemic has expanded significantly during the pandemic. To attract customers moving forward, the retail market will need to shift towards becoming very experiential (ability for customers to see/touch things, dining opportunities, etc.).
A collection of images showing office, retail, and industrial facilities in Troy, MI.
Recent Economic Development Activity in Troy
Electric Last Mile, an electric-vehicle startup that provides last mile delivery, will be bringing 200 jobs. (Top-left image)
Aptiv, the global technology and mobility company, continues their build-out on Innovation Drive, heading towards 500 jobs at that location. (Top-right image)
Flex N Gate, a Tier 1 auto supplier, established a new manufacturing facility, adding 245 jobs. (Bottom image)
Three images of buildings representing recent economic development activity in Troy. Top left: Electric Last Mile. Top right: Aptiv. Bottom: Flex N Gate.
Additionally, City of Troy is encouraging the redeveloping of singular office properties to more dense, mixed-use properties to create the kind of environment that these companies are seeking, which includes co-working spaces.
Mixed-use redeveloped project in the city of Troy.
What will the New Normal Be?
Hybrid Office and Remote Work
Reduced Office Space Needs
Need for Human Interaction
Co-Working Space
Redevelopment of obsolete office properties
Concerns with the impact on retail and restaurants
The Eastland Mall site had been in a period of decline; changes in people’s shopping habits contributed to the demise of malls, especially for Eastland Mall.
In recent years, the Eastland site has been a large pull on the community.
NorthPoint Development, a leading industrial developer, proposed that the Eastland Mall site be redeveloped into a new Class A industrial facility, what’s being called the Eastland Commerce Center.
Aerial view of the Eastland Mall site
The accompanying image is a rendering of the proposed development site and the needs for this kind of development. The green areas are planned retention ponds that will help tremendously with runoff.
Rendering of proposed development site and need for this kind of development
The development center will be over 1 million square feet, covering 78.9 acres of land.
This will be approximately a $94.2 million investment creating about 560 jobs plus and an expected 250 construction jobs.
It is anticipated that this will be a long-term partnership with NorthPoint, putting the Eastland site back online for the City by providing real property tax value.
Portrait of Steven Morris alongside the Axis Advisors logo.
Looking at the balance sheet for corporate America the highest cost for those operations are payroll and health care; the next highest cost is rent. Axis Advisors’ sole focus is representing corporate, non-profit, and governmental tenants to reduce rental costs.
2021 Metropolitan Detroit Office Outlook
(Wayne, Oakland, Macomb)
Overall Vacancy: 20.76%, up from 18.08% in 2020
Direct Asking Rents: $18.50, down from $19.00
CITY OF DETROIT
Negative Net Absorption Q1, Q2, 2021: 171,261 SF
Average Asking Lease Rate: $23.50
Average Class A Asking Rate: $29.50
Average Class B Asking Rate: $18.75
Vacancy, Q2: 16.95%
Sublease Space: 159,000 SF
CITY OF SOUTHFIELD
Negative Net Absorption Q1, Q2, 2021: 3,068 SF
Average Class A Asking Rate: $23.00
Average Class B Asking Rate: $18.50
Sublease: 394,970 SF
I-275 CORRIDOR
Vacancy: 13%
Average Asking Lease Rate: $20/$40
Negative Net Absorption Q1, Q2, 2021: 39,417 SF
Sublease Space: 111,127 SF
Office Market Notes
The primary office markets in the region are City of Detroit; Southfield; the I-275 Corridor encompassing Farmington Hills and Wixom; Troy; and Ann Arbor.
Office lease rates in the suburbs are lower than Detroit; this is an aftermath of foreclosures during 2011-17, which were a result of the Great Recession; Bedrock was purchasing 70% of the office buildings in Detroit, while suburban buildings were being purchased for a fraction of their previous value, resulting in this rental rate dichotomy.
The office rental market has approximately 60 million square feet of multi-tenant space for lease of which about 20% is vacant, or 12 million square feet.
In addition to the vacant space, another 600,000 square feet are under sublease as a result of the downturn the past couple of years, which provides additional challenges to landlords with respect to negotiations.
No speculative multi-tenant new space coming on board at this point.
Down the road the Bedrock Hudson site in Detroit will come on board with Class A rental space; there will be no rental space for lease in the Chemical Bank building in Detroit.
2021 Metropolitan Detroit Office Outlook Continued
(Wayne, Oakland, Macomb)
CITY OF TROY
Negative Net Absorption Q1, Q2, 2021: 65,753 SF
Average Class A Asking Rate: $23.00-$25.00
Average Class B Asking Rate: $18.50
Vacancy, Q2: 25%
Sublease Space: 410,350 SF
CITY OF ANN ARBOR
Negative Net Absorption Q1, Q2, 2021: 22,385 SF
Average Class A Asking Rate: $32.00
Average Class B Asking Rate: $24.50
Vacancy, Q2: 5.5%
Sublease Space: 15,818 SF
Future Hybrid Workplace
“Working from anywhere” concept began in the 1990s.
Re-engineering concepts also took root in the 1990s encouraging getting the fat out of the workplace and reduce the amount of space and cost.
Concept continued throughout the pre-covid with focus on efficiencies, collaboration, open space plans, and incorporating concepts such “hoteling” and workspaces where people worked right next to each other.
With the Covid, increasing space efficiency has obviously gone away at this point; the re-opening of office space will not be based on the efficiency of space.
Real estate paradigm shift will require bringing in design companies to adapt real estate needs in implementing a new work model.
Will need to develop policies for working remote and managing change.
Regional Priorities
Some of the priorities identified at regional conversations are as follows:
Increasing Flexibility
Transforming Office Space to Cultural Space
Redeveloping Obsolete Office Buildings and Repurposing Old Retail Stores
Visionary planning and design practices
Assessing Effects on Taxable Value and Local Government Revenue
Anticipating Evolving and Changing Residential Demand
Increase Affordability, Accessibility, and Equity across residential, office, and commercial spaces
You may add your thoughts on these or additional priorities in the survey below.
Share your Perspective
If you would like to share your opinions or provide feedback about the future of commercial and office space in Southeast Michigan, please use the email below to send an email to SEMCOG.
Additional resource links, planning tools, and project examples are listed below to support the new future for office and commercial space in your community.
SEMCOG Data, Reports, and Tools
Building Footprints Tool - An interactive tool to explore SEMCOG's building data for Southeast Michigan.
Broadband Page on semcog.org – Information about the work SEMCOG is doing related to broadband internet availability and accessibility in Southeast Michigan.
