Three intriguing takeaways from Swisher Commercial's annual Ann Arbor real estate vacancy report

Ann Arbor real estate firm Swisher Commercial recently released its annual Year-End Vacancy Report, indicating that the total market vacancy rate in the Ann Arbor area was about 6.4 percent in 2018, down from 7.2 percent in 2017. The report breaks vacancies down further by type of office space and specific areas of Ann Arbor, and there are a few intriguing trends in the data.

 

Read on for three main takeaways from the report.

 

1. Office space is still tight all over, but downtown vacancies are up slightly. Downtown vacancies increased from 2.1 percent in 2016 to 3.6 percent in 2017 mostly due to the addition of 26,000 square feet of office space built in 2016 and 2017. The vacancy rate grew again in 2018 to 6.8 percent. Swisher Commercial agent Bart Wise says this was due in part to a slowdown in inquiries about and showings of downtown office space.

 

"Even though a downtown vacancy rate of 6.8 percent is still low, activity level was slow in 2018, and that's not what we saw in 2015-2017," when tech companies were insisting they needed space downtown, Wise says.

 

Wise says he's not sure what caused the slowdown, but price is likely a factor. Not only are companies paying more than $30 per square foot in leasing costs for downtown office space, but they and their employees have to pay for parking on top of that.

 

"High-tech companies might say, 'That's a lot of money for office space, and we'll find a different way to handle our needs,'" Wise says.

 

2. An Ann Arbor mailing address remains desirable. The Swisher report covers the city of Ann Arbor as well as Ann Arbor, Scio, and Pittsfield townships, but all those areas use Ann Arbor in their mailing addresses.

 

"Anything with an Ann Arbor address is seen by most tenants as more favorable," Wise says. He notes that there's more vacant land available for commercial development in Scio and Pittsfield townships and expects that if more office space is added in coming years, it will be in those areas.

 

3. Demand for flex space has slowed down. 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 but bounced back up to 5.6 percent in 2018.

 

Wise says there was a "big boom" in people looking for flex space in the south of Ann Arbor in the 1990s, but that appears to be cooling off. In just the south side, the vacancy rate rose from 4.2 percent in 2017 to 5.3 percent in 2018. Wise notes that he doesn't think people should read too much into that, as both rates reflect a very tight market.

 

"But, interestingly, as brokers, we found that there was a very modest demand for that space," he says.

 

Wise handles several flex suites on Research Park Drive, for instance, and in 2018, though he had several showings, he was only able to rent one of three vacant buildings.

 

"Given there is only about 5 percent available in the market, and I only rented one, that tells me that even though the vacancy rate is low, demand is not strong," Wise says.

 

Find the full report here.

 

Sarah Rigg is a freelance writer and editor in Ypsilanti Township and the project manager of On the Ground Ypsilanti. She has served as innovation and jobs/development news writer for Concentrate since early 2017 and is an occasional contributor to Driven. You may reach her at [email protected].

 

Image courtesy of Swisher Commercial.

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