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‘Positive trajectory’: Office return builds hope for downtown Detroit businesses

Posted By: The Detroit News on January 24, 2023.  For more information, please click here to read the source article.

With businesses starting to encourage or require in-office work, downtown is expected to be its busiest this year since the pandemic sent office workers home in March 2020.

Next week, thousands of General Motors Co. employees will descend again on the Renaissance Center after the automaker changed its work strategy to require most employees to work in-office three days a week. Other employers are encouraging more in-person collaboration to build culture and foster collaboration, which they’ve found difficult to do in a virtual world.

On average, the number of employees working downtown last month was 21,139, or 47% of the total in December 2019, which was 45,348, according to data from the Downtown Detroit Partnership. DDP CEO Eric Larson expects at least 60% to return this year, and he’s anticipating the visitor population to hit pre-pandemic levels, especially with notable events like the return of the Detroit Grand Prix to downtown streets this year.

“We’re going to continue to see a positive trajectory,” Larson predicted. “It’s definitely going to be different … we’re gonna look at office space, and the use of office space, differently. But that also opens up an opportunity for areas where there’s still significant demand, like residential and hospitality.”

Some businesses downtown already are seeing an uptick with more downtown office workers coming in for lunch or after-work drinks. The return of GM employees is especially critical for the Renaissance Center, the landmark 73-story complex that makes up much of downtown’s office vacancy rate.

Inside the Renaissance Center, Lee Ann Wasik, assistant general manager at Joe Muer Seafood, where she’s worked since 2011, is “very, very, very excited” to see GM employees coming back, she said: “They were a very integral part of our lunch business and our happy hour business. In the last week or two weeks, they’ve started trickling in. So I’ve seen a lot of my regular guests that have been with me over the years.”

The shift by businesses to require in-office work isn’t surprising to experts now that the era of “the great resignation” has settled. Entering 2023, employees in some sectors — especially tech — have less leverage amid a weakening economy and a cooling labor market marked by layoffs among large companies such as Amazon and Google.

“Employees were flexing their muscles during some parts of the pandemic when employers were being a little bit more lenient, but now you’re seeing employers … want people back,” said Angela Hall, an associate professor at Michigan State University’s School of Human Resources and Labor Management.

Companies want their people in person to encourage teamwork, monitor productivity and ease the onboarding of newer employees, Hall said. But they’re likely to keep a hybrid work strategy in place since employees have grown accustomed to it.

The return of workers downtown — to some degree — should increase the city’s income tax revenues. The city lost $23.5 million in income tax revenue from remote work in its fiscal year 2020, which more than doubled the following year to $54.5 million. The Office of the Chief Financial Officer projected the city will lose $35.4 million in fiscal year 2022 and $36.8 million in fiscal year 2023, which starts on July 1.

The great office return

GM last fall informed its white-collar workforce it would enforce a policy of in-office work three days a week starting at the end of January. The decision affects GM employees at multiple campuses, including the Renaissance Center headquarters, Milford campus and Warren Global Technical Center. The automaker has 35,000 salaried employees in Michigan.

Employees posting on Reddit and other forums weren’t happy about GM’s shift from its “Work Appropriately” model presented during the pandemic, which gave teams the flexibility to work from home, a lab, an office or wherever they could do their best work. But GM noted that the model was not a “policy” when it was implemented.

Spokesperson Maria Raynal said the company believes “a combination of remote and in-office work provides employees with the flexibility they need and the collaboration the enterprise needs to nourish its culture, train and mentor new employees and develop and build vehicles.” GM’s managers and their employees will work out scheduling together.

Other major downtown employers, such as Rocket Companies, also have brought back their employees on a hybrid schedule. Rocket, which includes Rocket Mortgage and other businesses, started to have people back in their offices in 2021 under a hybrid model.

“We constantly have a presence in our buildings and, as a result, local businesses can again rely on the foot traffic from the thousands of team members who come into our offices each day,” Rocket Companies spokesperson Aaron Emerson said in a statement.

DTE Energy Co. has not mandated employees to come back to the office, but the company has encouraged some return. About 4,000 could work at the downtown offices if they wanted.

“We’re trying to do this organically to create the results of hybrid in a way that creates that balance, empowers our leaders, but does build an in-person presence that is vibrant, and people want to be part of,” said Amy Schultz, DTE’s executive director of organizational effectiveness and chief learning officer.

“We are actually seeing an increased vibrancy when you come downtown so we can feel it when you walk through the doors. The energy is coming back.”

Blue Cross Blue Shield of Michigan is requiring employees to come back one day a week and encouraging employees to come in for two days. The insurance provider has 5,500 employees in Detroit and 7,500 in the Metro area.

“We recognize that there are a lot of pros and cons to remote work and we’re really proud of our record in servicing our members throughout the pandemic,” said Tricia Keith, executive vice president, chief operating officer, Blue Cross Blue Shield of Michigan, and president, emerging markets. “But there are implications in both short- and long-term productivity of the remote environment in career growth, job satisfaction, engagement.”

Blue Cross is monitoring how employees react to the return as the pandemic continues to ebb and flow, Keith said: “It really depends on the job type, but I do think when people are coming in, they’re realizing the benefit of that collaborative environment and seeing people.”

GM’s crosstown rival Ford Motor Co. does not have a companywide mandate for in-office work at its Dearborn headquarters. Instead, where work is done is up to leaders and their teams.

In a statement, Ford spokesperson Gabrielle Poshadlo said the company continues “to see an increase in non-site dependent employees in Michigan returning to the campus since our official return to campus in mid-2022. We’ll continue to see that number rise as leaders adjust their team schedules throughout the year.”

Stellantis NV instituted its “new era of agility” that, on average, has employees working 30% of the time in the office and 70% remotely — less than two days in the office for a five-day work week. Still, the company has employees around the country who work from home permanently.

“The teams that have flexibility, we’re kind of ‘on the 70-30 model,’ but some are higher, some are lower, but we want people to have the flexibility, and no, we’re not going to turn that back off,” Mark Stewart, chief operating officer for Stellantis in North America, said last month.

“We’re finding people are way more efficient, and you’re not spending that time on traffic jams and back and forth. People have mostly figured out the whole family juggling thing. So, there’s no need to disrupt that. Why would we cause that much strife? Because we’re very happy with how things are going right now.”

Vacant offices could be converted

Office workers may be returning, but vacancy rates remained elevated at the end of 2022 across Metro Detroit as tenant demand weakened and businesses downsized their office space, according to real estate firm Savills, which has an office in downtown Detroit. The availability rate in Detroit’s central business district was 17.1% in the fourth quarter of 2022, up from 15.4% in the fourth quarter of 2021.

“As companies continue to reevaluate their office requirements and increasingly opt for hybrid and remote work policies, the near-term outlook for the Detroit office market remains uncertain,” the firm wrote in its fourth-quarter office market report for Metro Detroit.

Average rental rates in the Detroit office market declined an overall 0.6% to $20.22 per square foot. In Detroit’s central business district, rents were an average $24.05 in the fourth quarter of 2022, down from $25.79 in the fourth quarter of 2021.

Subleases were up across Metro Detroit, reaching an all-time high of more than 2.4 million square feet. Among the largest subleases to come to market in the fourth quarter was advertising agency WPP, which sought a sublessee for nearly 33,000 square feet in the Marquette Building at 243 West Congress St., according to the Savills report.

Peter McGrath, associate director in Savills’ Detroit office, said some office buildings might have their use converted in the future. For example, Bedrock rehabbed the former Detroit Free Press building at 321 W. Lafayette Blvd. to a mixed-use space with residential options and converted the David Stott Building at 1150 Griswold St. from an office facility to mixed-use with residential.

As for the Renaissance Center, McGrath said it still boasts a roster of tenants including firms Dykema and Urban Science. However, the building could use more occupants.

“It’s GM’s global headquarters,” he said. “If GM wants to reactivate the building, it has to start with GM leading the charge. It’s going to be difficult to lease a building where its owner isn’t really in the building or using it.”

GM has the challenge of attracting people from other parts of downtown, such as Campus Martius, McGrath added.

When GM employees return to the Renaissance Center, it will look and feel different with fewer open restaurants in a quiet food court. On Tuesday afternoon, Andiamo, Salsarita’s, Subway, Zoup, Coney Town, Gyroland and Fish City inside the food court were all closed.

“It’s been quiet,” said Richard Camarota, owner of Highlands Detroit restaurant. “There’s no doubt about that. So it will hopefully be nice to see some more bodies in the building.”

Highland Detroit, which occupies the 71st and 72nd floors of the Renaissance Center, continues to attract a range of diners drawn to the unique location. Still, he’s looking forward to the additional traffic from GM workers.

“I’m sure the middle of the week will be a little bit stronger than the rest of the week,” Camarota said. “When we first opened, we did have a great crowd of people that would come up, especially in that 4:30, 5 o’clock range. They’re finishing work, they’d come up to have drinks and maybe finish a meeting upstairs or something like that. So yeah, we’re looking forward to some of that traffic coming back.”