Unlike other markets that have struggled to rebound after being devastated by the Covid-19 pandemic shutdowns and unemployment struggles, Detroit’s industrial sector has been incredibly resilient, reaching a 10-year high during the second quarter of 2021. This is largely due to Michigan’s historical leadership transportation equipment exports, which has resulted in the area featuring a world-class logistics infrastructure that was able to pivot during the pandemic to support increased demand for e-commerce-related work while manufacturing flailed. This consumer preference shift toward e-commerce has continued to grow even as the other impacts of the pandemic have lessened, meaning that warehouse space to support such ventures is in the greatest demand, with logistics properties like distribution and warehousing enjoying a vacancy rate of just 3.9%.

Q3 Industrial Report

Leasing

Detroit’s decelerating industrial growth prior to the pandemic has actually turned around over the past year, with a 335% increase in absorption from Q4 of 2020 to Q2 of 2021, as absorption soared from -900,000 to over 2 million SF. The largest industrial leases right now are those supporting logistics, distribution, and warehousing. These are primarily in the Airport District, the Southern I-96 Corridor, and Farmington/Farmington Hills, all of which feature proximity to key transportation nodes and economic infrastructure.

Renting

At 6.4% for the past 12 months, industrial rent growth in Detroit remains strong in comparison to other midwestern cities. With a vacancy rate of 4.2% (the lowest among its peer cities). An average rate of $7.53/SF, Detroit remains a popular investment market for new industrial developments, particularly those supporting the growing e-commerce industry. Sandwiched between two of Detroit’s main highways, the most expensive submarket is the Central I-96 Corridor, where rents increased 6.68% last year to land at $9.59/SF.

Construction

Development activity in the Detroit area has grown steadily but not rapidly over the past 5 years, reaching just over 7 million SF currently under construction. A significant share of this development is speculative, with approximately 78% available, which is 22% higher than the national average. The most significant deliveries this year have been in the Airport District (1.6 million SF) and Auburn Hills (1 million SF).

Here are the top submarkets in Detroit for the third quarter:

1. Central I-96 Corridor
2. W of Van Dyke/Macomb
3. Airport District
4. Auburn Hills, Pontiac, and Rochester
5. Livonia

Under Construction Properties

The majority of new construction is happening in the Central I-96 Corridor, which benefits from its excellent location along a major east-west logistics route. Those developments include 7 distribution and manufacturing sites in Wixom and Lyon Township.

Here are the 7 largest properties that are, or were, under construction in the third quarter:

1. 10160 Assembly Park Dr
2. Oakland Logistics Park
3. 42000 Ecorse Rd
4. 13751 Hamilton Ave
5. Livonia West Commerce, Amrhein & Eckles Rd
6. Livonia West Commerce, 12950 Eckles Rd
7. 7080 23 Mile Rd

Sales

Unlike other major metropolitan areas, Detroit’s increased demand for industrial space has not translated into a significant increase in sales. Nevertheless, after a bit of a wild ride last year, sales seem to have stabilized in 2021, with $455 million in transactions by mid-year, driven largely by industrial REITs. As sales have stabilized, prices have increased from last year’s low of $58/SF to an average of $65/SF.

Economy

Like the rest of the country (and most of the world), Detroit’s economy was impacted negatively by the Covid-19 pandemic. At its peak, unemployment reached 22.7%, which was 6.5% higher than,  previously record-breaking number of 16.2% following the Great Recession in 1982. This devastatingly high unemployment snow-balled into a lack of demand because without jobs people had no purchasing power.

Federal stimulus money helped keep the bottom from falling out by enabling people to pay their rent, maintain their health insurance, and buy groceries. Now things are starting to look up. In spring 2021, Michigan implemented a scaffolded economic reopening plan called the MI Safe Start Plan, and it has been moving forward as intended.

The year-over-year job growth rate for the Detroit area reached 8.6% when 152,400 jobs were added in June. Office workers comprise the largest workforce in Detroit at 29%, and they, along with industrial (19%) and healthcare (13%) have seen the greatest recovery since the low points of employment last year. The hospitality industry might have been the hardest hit by the pandemic, and restaurants and lodging continue to struggle. Finally, while the greatest growth has been in suburban areas, strong foreign direct investment (FDI) in manufacturing continues to support the metro Detroit area.

This is a summarized version of an office market report that was originally created by CoStar. The full report can be found here.