In turnaround, suburbs lose business to Detroit after years of flight

The Southeast Michigan office of Grand Rapids-based public relations firm Lambert Edwards & Co. had been located for years in a gleaming high-rise Troy tower, surrounded by a sea of asphalt parking lots and clogged highways.

“You couldn’t walk out your door to get a sandwich,” President Jeff Lambert said. “It was sort of an outmoded office environment.”

So earlier this year, Lambert relocated his office and the 15 people working there to what had been an abandoned retail storefront in a city many businesses once feared to tread—Detroit.

“There’s a business cheerleading section in downtown Detroit and we’re excited to get caught up in it,” he said.

Dozens of companies, many of them in creative industries such as advertising, architecture and design, are flocking to central-city Detroit in a surprising reversal of the mass exodus to the suburbs that took place during the past half century.

They say they are moving to Detroit to attract young workers who want to live and work in cities, and to attempt to revitalize a city that was abandoned by a previous generation of businesses.

Even Whole Foods, the upscale food retailer, is opening a new store next week in the Midtown section of what has long been one of the nation’s poorest, most crime-ridden cities.

“I’ve been here 16 years and this is the biggest burst of development in Detroit I’ve seen in that time frame,” said David Egner, executive director of the New Economy Initiative for Southeast Michigan.

Egner’s group has raised $100 million from area foundations and is  investing it in entrepreneurial ventures in the city and surrounding region.

While a reviving core city is generally seen as good economic news for the Southeast Michigan region, if not the entire state, there is little data on business formation occurring in Detroit.

And some say much of Detroit’s business growth is coming at the expense of the suburbs, amounting to a zero-sum game.

Quicken Loans founder Dan Gilbert, who gets much of the credit for breathing new life into downtown Detroit, moved his company and its 1,700 jobs from Livonia to Detroit in 2010.

Since then Quicken and its family of companies have moved more than 8,000 jobs to the city.

Blue Cross Blue Shield of Michigan last year transferred 3,000 workers from Southfield to the Renaissance Center in Detroit.

And advertising agency Campbell Ewald said in March it will move its headquarters from suburban Warren to a former J.L. Hudson Co. warehouse next to Ford Field in January. The move will shift 600 jobs from Warren to Detroit.

“I’m glad to see Detroit is back in business. I just wish it was recruiting businesses from out of state rather than the county next door,” said Oakland County Executive L. Brooks Patterson, who has long had a contentious relationship with the city.

“The suburbs are doing their part to help Detroit,” he quipped.

Even the threat of the financially troubled city filing for bankruptcy isn’t stopping business owners from investing in Detroit.

“I think I and many others in the business community have a tremendous ability to compartmentalize,” Lambert said. “We have to be optimistic to survive.”

By one measure, Detroit’s central business district appears to be prospering at the expense of the suburbs.

A report by real estate broker CBRE Inc. in Southfield said that 47,021 square feet of office space in Detroit’s central business district had been occupied in the first three months of this year.

But a net 29,760 square feet of space was vacated during the same period in the suburbs, according to the report.

Downtown Detroit’s office vacancy rate at the end of March was 23.3 percent, compared to 27.2 percent in the suburban market.

And the asking price for office space in downtown Detroit was $18.53 per square foot in March, $2.01 a square foot higher than in the suburbs.

“Tenants continue to have an urban preference as they look to appease a youthful workforce,” the CBRE report said.

Still, the suburban office market, with 58.8 million square feet of space, is more than three times larger than Detroit’s 16.3 million square feet.

And demographic experts say there is no reliable data available on how many businesses are located in Detroit and how many have moved there in recent years.

The little employer data that is collected is held by the state and not shared with independent demographers and local officials, said Kurt Metzger, director of Data Driven Detroit.

Such data could help government officials and economic developers gain a better understanding of the dynamics of the city’s business activity.

“No one has put in the systems necessary to track the data that should be readily accessible,” Metzger said.

The Census Bureau’s economic census tracks the number of business establishments by locality. But the bureau won’t start releasing data from the census until the end of this year.

A report released in February by the Hudson-Webber Foundation offers a snapshot of what’s been happening the Detroit’s major business district in recent years.

The report says there has been $6 billion worth of real estate projects built in the greater downtown area since 2006.  It also forecast that “creative companies” such as Campbell Ewald will add another 1,750 jobs by 2017.

But the city has a long way to go to make up for decades of disinvestment and job losses.

Detroit had 23,465 business establishments in 1972, according to the first economic census taken after the devastating 1967 riots. By 2007, the last census figures available, the number had fallen by two-thirds to 7,817.

The city has lost 25 percent of its population just in the past decade. About 701,000 people live in Detroit, down from its peak of 1.8 million in 1950.

And although Hudson Webber says there are more than 10,000 new workers in downtown Detroit than there were in 2010, the city as a whole has added only about 3,000 new jobs in that time period, according to the Bureau of Labor Statistics.

“We’re just getting started,” Egner said. “A real turnaround is going to take at least 10 years to move fully in the right direction. It’s going to take awhile to overcome 50 years of disinvestment.”

Some suburban officials say they have been successful in finding new tenants for buildings vacated by businesses moving into downtown Detroit.

Farmington Hills City Manager Steve Brock said when Compuware Corp. decamped from there to Detroit in 2003, a major law firm and affiliated companies soon took over the company’s space.

“It gave us some short-term angst,” Brock said. “But if it’s not just moving pieces around—if there’s overall growth from businesses moving to Detroit—how can you be against it?”

Patterson said a more economically vibrant Detroit would turn around negative perceptions of the entire metro Detroit region and help him bring more businesses to Oakland County.

“I’d like to see Detroit come back,” he said. I could use that as a recruiting tool. My job would be easier.”

Rick Haglund has had a distinguished career covering Michigan business, economics and government at newspapers throughout the state. Most recently, at Booth Newspapers he wrote a statewide business column and was one of only three such columnists in Michigan. He also covered the auto industry and Michigan’s economy extensively.

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Tue, 05/28/2013 - 10:59am
Until we hear about more companies moving into Detroit from out of state instead of just moving there from the suburbs, it's tough to get too excited. Just playing the shell game.
Charles Richards
Tue, 05/28/2013 - 1:27pm
Mr. Haglund says, "And the asking price for office space in downtown Detroit was $18.53 per square foot in March, $2.01 a square foot higher than in the suburbs." Yet in the May 12, 2013 Detroit Free Press, Stephen Henderson lists eight redevlopment projects in Detroit that are a total of $23,974,918 behind in their loans because they cannot charge rents that are high enough to cover all their costs. He quotes Sue Mosey, president of Midtown Inc., which developed the Inn on Ferry Street, as saying, “Think about rental rates around here. Ten years ago, we were at around $1.10 per square foot, now we’re at $1.40. But that’s still a long way from the $2 you’d expect in other cities.”
Wed, 06/19/2013 - 11:20am
I don't see it as a "zero-sum game" at all. When businesses move back into Detroit from the suburbs, that generates a lot of goodwill, excitement, and buzz about the NAME "Detroit". When you hear companies from out-of-state talking about moving, they don't ever read about or think, "Gee, we hear a lot of good things about Troy, Michigan!" or "Let's move to Warren!". No, they say "Detroit". I work for a company that is on track to hire over 50 people this year; these are NEW jobs in Detroit. My company decided to launch IN DETROIT because of the positive buzz and excitement around this burgeoning business district. They moved here from Texas simply because Detroit is seen as a vibrant, upcoming, cool, and exciting place to do business. I know of quite a few businesses that are moving here from out of state, and it's because of large companies that move INTO the city and generate positive buzz and PR from the suburbs. It's pretty simple: Detroit is exciting and interesting. The suburbs are not.