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Prepared by Michael Grammatico, Senior Sales Executive, CoStar Group, Inc.

With October underway, Detroit's office market is looking to recover from a lackluster first half of 2025 and build on the strong demand momentum posted in the third quarter.

Office owners have been contending with a prolonged period of weak demand stretching back to 2020. Net absorption has been negative every year since, though the measure has been improving in 2023 and 2024. This year's first half again underperformed historical averages, as tenant move-outs outpaced move-ins by nearly 1.7 million SF. That briefly pushed the average vacancy rate to 12.5%, a level last seen in early 2016. However, preliminary data show space demand bounced back in the third quarter, as a flurry of 100,000-SF-plus move-ins was recorded.

A labor market stuck in neutral has been partly to blame for subdued leasing activity. While financial activities and the government segment have posted modest growth in payrolls over the past year, reductions in professional and business services roles offset gains elsewhere in traditional office-using sectors.

Although weakness on the demand side has recently pressured Detroit's office fundamentals, minimal new construction has helped keep vacancy increases in check. Office inventory across the Detroit metro has increased by just 248,000 SF since the beginning of 2020, held back by an above-average level of demolition activity in 2023.

Accordingly, the average vacancy rate has hovered around 12% since the end of 2022, widening the gap between the national benchmark that's continued to increase over the past two-plus years to 14.1%. The Base Case forecast projects much of the same on the vacancy over the next 12 months, with Detroit's measure clinging to current levels in the near term. Due to elevated vacancy and slowing payroll gains, annual rent growth is expected to moderate further through the middle of next year, slowing from 1.2% in 25Q4.

The balance of risks is skewed to the downside, as the Detroit metro is past peak population gains for this cycle, and employment growth is tracking below long-term averages. This backdrop could prove challenging as an influx of new supply looms in 2026 and beyond.