Outlook on commercial real estate draws investment interest

METRO DETROIT — Years have passed since the COVID-19 pandemic first hit the country, and the work-from-home culture that emerged has inevitably affected commercial real estate and occupancy rates in some sectors of the community.

“I think we are probably turning the corner now in office, and now it’s just everybody reconfiguring their spaces and maybe moving around, but I think the percentage of occupancy has probably bottomed at this point,” said Todd Szymczak, the senior vice president of investment sales for Farbman Group.

While occupancy rates have been low for the last few years in office buildings in particular,  Szymczak said things might be looking up as far as the number of tenants in buildings, since employers are pressing harder to get people back working in offices.

“I think, in all likelihood, there will be more people in the office a year from now than there are today and more days than there are today,” Szymczak said.

The low occupancy rates in offices have also affected the cost of these spaces.

“We get calls from buyers on a regular basis now looking to buy their own office buildings, and I think it’s because the pricing has come down to a point where users recognize this could be a good opportunity to purchase their own space,” Szymczak said.

Szymczak said this trend applies mainly to spaces less than 150,000 square feet. He said they have recently sold some buildings around 100,000 square feet where the purchasers are not using the whole thing, but see it as an investment opportunity.

“People are looking at saying, ‘Hey, if I’m using 25% of it, why don’t I kind of turn this into a little side investment instead of paying rent to somebody else?’”

Szymczak recently spoke at the Birmingham Bloomfield Chamber of Commerce’s Real Estate Forecast Breakfast.

During the presentation in March, Szymczak shared that offices in Birmingham, Bloomfield Hills and Royal Oak currently have the highest demand. Nationwide, suburban/urban offices are doing the best, followed by suburban offices.

In his presentation, Szymczak briefly discussed office conversions, such as turning old office spaces into apartments.

“That is extremely challenging, it is extremely expensive, and the location and the building only works in a rare case,”  Szymczak said.

One local community that is taking on several conversion projects is Troy.

“What Troy is doing, depending on the structure of the building and if it is supported, we would recommend and look at turning those office buildings into residential units if it’s feasible and it meets our zoning,” Troy Economic Development Manager Mark Adams said.

In Troy, two office buildings have recently been approved for conversion to residential use. These properties include the 103,000-square-foot office building at 275 Kirts Blvd. and an office space on Crooks Road, near Big Beaver Road. Between these two buildings, it is expected to bring 334 new housing units to Troy.

“It’s an alternative use of the office building that may be vacant or may be going vacant, and that’s what a lot of communities are wrestling with right now, because we’re still in a state of hybrid work environment where some people are working from home and some people working in office, and nobody is sure how that’s all going to shake out over the next few years,” Adams said. “I think you have to be creative with your office buildings.”

Adams said he thinks higher-class buildings with a lot of amenities are doing better than the lower-tier office buildings that need a lot of work.

Changes in the auto industry are also making a local impact on real estate.

“What we are seeing nationally and what we are seeing locally in Michigan is the transformation from a combustion engine to the electronic vehicle, and that’s causing a lot of software and technical operations to expand and to move where there are centers of excellence,” Adams said.

By “centers of excellence,” Adams is referring to clusters of technology-based businesses.

While every building is different, local experts have observed distinct trends in commercial real estate, many of which are looking positive.