5 surprising takeaways from Swisher Commercial's annual report on Ann Arbor real estate vacancies

Ann Arbor real estate firm Swisher Commercial released its 2017 Year-End Vacancy Report Jan. 2, indicating that the total market vacancy rate in the Ann Arbor area was about 7.2 percent for 2017. The report breaks down categories further by type of office space and specific areas of Ann Arbor, and there were a few surprises in the data.

 

Read on for five main takeaways from Swisher's year-end report.

 

1. Ann Arbor loves its "flex space."

 

Flex space is defined as commercial space that includes a mix of uses, typically office space up front, with vehicle storage, laboratory, or shop space in the back. Flex vacancy rates decreased from 6.5 percent to 4.6 percent in 2017.

 

"Flex buildings really took off in Ann Arbor in the 1990s," says Swisher Commercial agent Bart Wise. "There was a big boom, particularly in the south Ann Arbor market." Interest in these flex spaces remains strong.

 

2. Ann Arbor's downtown is still tight on space, but has some "breathing room."

 

The report indicated that the downtown area moved from 2.1 percent to 3.6 percent vacancy in 2017. However, this wasn't due to companies vacating their space but rather to an increase of 26,000 more square feet of vacant space, Wise says. He notes that downtown continues to have the lowest vacancy rate in years.

 

Tech companies are driving that trend, because tech companies seek highly-skilled software engineers, and when an employee is highly skilled, they have choices about where they want to work, Wise says.

 

"Downtown has become a very desirable space, so companies who want to attract the best employees are locating downtown," Wise says. He adds that it's not just amenities such as bars and restaurants that attract the talent, but architecture figures into the equation as well.

 

"Buildings downtown tend to have architecture and other design elements such as higher ceilings and brick walls that are interesting and desirable," he says.

 

3. North Ann Arbor has the lowest vacancy rate.

 

While downtown does have a very low vacancy rate, the north side of Ann Arbor has the lowest rate overall. The vacancy rate on the north side fell from 3.1 percent to 1.6 percent in 2017, even though it had the second-highest number in terms of square footage of all areas surveyed.

 

"That north market is occupied by companies that are very stable," says Wise. "There might be other markets where they gained and lost tenants, but the north market tended to gain and not as often to lose tenants."

 

4. "Class B" office spaces picked up in 2017.

 

Office buildings are considered "Class B" when they're somewhat smaller and older than new and shiny "Class A" buildings. The low vacancy rates in the Ann Arbor area have spurred a number of business owners to seek out these second-tier office spaces, Wise says.

 

"In comparison to recent years, we saw significantly more activity in these moderately-priced, smaller office suites," Wise says. He notes that this increase might not be noticeable to someone focused solely on square footage, but the trend was evident based on the number of these types of transactions Swisher handled in 2017.

 

5. The east side of Ann Arbor saw the most dramatic changes in 2017.

 

The vacancy rate on Ann Arbor's east side decreased from 16.6 percent to 9.7 percent in 2017. Still, Wise says he would call this "steady" rather than "booming". He noted that, based on conversations both with other Swisher agents and with friendly competitors, the first few months of 2017 were full of activity, but commercial sales slowed down later in the year.

 

The full report is available here.

 

Sarah Rigg is a freelance writer and editor in Ypsilanti Township. You may reach her at sarahrigg1@gmail.com.


Photo by Doug Coombe.
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