Building vacancies take toll on downtown Ann Arbor

ANN ARBOR, MI — Eugenia Pantely arrived at The Broken Egg after a long COVID-19 pandemic closure to find the first floor of the popular downtown Ann Arbor bunch spot flooded.

After facing challenges like this throughout the pandemic, and closing and reopening and closing again throughout 2020 and 2021, Pantely permanently closed the restaurant in early January.

Related: Despite its closure, The Broken Egg recipes will live on in family restaurants

Six months later, The Broken Egg’s logo ­— a rooster in a top hat with one foot propped on a cracked egg — is still in the window of the empty space behind it.

And The Broken Egg isn’t the only eye-catching empty storefront in downtown Ann Arbor.

Cloverleaf Restaurant at 201 E. Liberty St. and bd’s Mongolian Grill, 200 S. Main St. are two more recently prominent empty downtown spaces.

Related: 5 notable empty downtown Ann Arbor storefronts

The pandemic caused an economic upheaval in downtown Ann Arbor. While some retail spaces are slowly becoming home to new businesses, office spaces are lagging behind in efforts to attract new occupants.

Some longstanding empty spots — like the former Chela’s, 307 S. Fifth Ave., which is set to become a new Mediterranean rotisserie — have recently filled, but notable ghostly storefronts still raise questions.

One is the former Urban Jewelers, 215 S. Main St., which closed in 2017 and has remained empty since.

“I’d love to know what the heck is going on with that space,” said Sandra Andrade, Main Street Association executive director.

Neither the owner of the building nor the business owners could be reached to provide answers.

But, in general, businesses do say they’re seeing a slow return to normalcy as they move further from the pandemic.

Data from Ann Arbor leasing agency Colliers shows that vacancy rates for retail space in Washtenaw County rose from below 3% in the first quarter of 2020 to roughly 4% in the first quarter of 2021. While vacancy rates for retail spaces dipped again throughout 2021, the rate rose again by the end of the first quarter in 2022.

Mike Moshier, manager of Fjallraven, which neighbors the former Urban Jewelers location, said he’s most concerned with a lingering decline of foot traffic by his store during working hours.

“Our traffic has definitely gone down,” he said. “We’re kind of getting back up to about 2019 numbers, but it’s still down quite a bit. The day traffic was usually people working in the offices that are probably all virtual right now.”

Fleet Feet, 123 E. Liberty St., sees strong traffic in the morning and late afternoon during the weekday, with a spike in early afternoon traffic on the weekends, manager Paul Livingstone said.

“Things are more or less back to normal, at least for now,” Livingstone said.

Despite retail pick up, restaurants still see changes

Though retail is seeing a return to 2019 levels, restaurants are not, especially in their schedules.

Alan Zakalik, owner of Café Zola, 112 W. Washington St., said he’s seen a difference in early-morning patrons. While he used to open at 7 a.m. to accommodate corporate business meetings, he now opens at 8 a.m.

Places that were generally open for breakfast or brunch are now opening later, Andrade said. But people are still coming downtown overall, she said, pointing to the success of Sonic Lunch and A2 Summer Streets.

Zakalik blames a shifting office culture for fluctuating restaurant hours. But street closures sponsored by the Main Street Association, which has kept Washington Street closed around the clock, has helped attract customers.

“It creates a draw, so even during the week, people do enjoy coming down and even having breakfast or lunch in the summertime,” Zakalik said.

Office vacancies impact downtown businesses

There are fewer employees downtown.

MLive/The Ann Arbor News toured a 24-block area in downtown Ann Arbor in June, including William Street from First Street to South Fifth Avenue, First Street from West William Street to West Kingsley Street, Kingsley Street from North First Street to North Fifth Avenue and Fifth Avenue from East William Street to East Kingsley Street.

Of the 28 building vacancies in this area, 23 were office spaces. Buildings east of Main Street saw the most vacancies at 12, 11 of which are empty offices.

The office vacancies are a continuation of 2021 trends, said Michael Giraud, vice president of Ann Arbor real estate firm Swisher Commercial.

“It seems to me the market is continuing to slide,” Giraud said. “We are getting more office space and more vacancy, and there aren’t corresponding increases in people looking.”

The 2021 Swisher Report, which surveys Ann Arbor commercial buildings of 5,000 square feet or larger, showed that vacancy rates for downtown Ann Arbor skyrocketed from 5.7% vacancy to 14.2% vacancy from 2019 to 2021.

Related: Office, flex space vacancy rates have nearly doubled since 2019 in Ann Arbor

More recent data from Colliers shows similar trends. Numbers released for Washtenaw County in February show office vacancy rates at 10.4%, outpacing retail at 3.7% and industrial at 4.7%.

Office space being leased is on the smaller side, as companies continue to use a hybrid work environment, the Colliers and Swisher groups said.

“We don’t have a lot of the larger footprint deals coming through,” said Eric Rudland, an associate with Colliers, adding that the agency typically sees at least several leases between 30,000 and 60,000 square feet per year. “But we haven’t had those in a few years.”

Giraud is worried about the impact empty offices have on downtown on weekdays.

“It doesn’t take long to look at downtown and see the parking that’s not being used, the restaurants or coffee shops that aren’t as busy as they used to be. There’s just not as many people downtown,” he said.

Future of offices remains unclear

Despite the empty prominent storefronts, at least one real estate agent remains unconcerned.

“These contracts just generally take a long time to get together, negotiate and then get assigning done, and then doing designs, build out,” said Wonwoo Lee, a chief real estate officer with Ann Arbor commercial real estate agency Oxford Companies. “I would say that a few months isn’t anything to be terribly concerned about.”

The demand for office space will increase as companies continue “right-sizing” their spaces, Lee said.

“You’re talking about mentorship; you’re talking about coaching; you’re talking about team building,” Lee said. “Those things really can’t be done as effectively on Zoom. While the leasing velocity of downtown office (space) is still relatively slower than it was pre-pandemic, I believe this to be temporary and that people will still invest in good quality office real estate.”

A recent push for strong downtowns have made them “resilient,” Lee said, especially since retail and restaurant spaces have not struggled as much as offices.

Deeper concern surrounds leases that are set to expire in the coming months, Giraud said.

“Those of us that have been in the industry for a long time, we’ve seen situations where there’s more vacancy than now, but this is different,” Giraud said. “This is unique because it’s economic, but it’s not based on some sort of economic downturn. It’s based on lack of need.”

While some office spaces are technically leased, the companies have not been actually using all of — or in some cases, even part of — the space, Randy Maas, a Swisher Commercial agent, said. And some companies are opting for office spaces outside of the downtown area altogether.

While it is unlikely office vacancy rates will double again in the next Swisher Report, it does appear those numbers will continue to rise, Maas said.

“When those leases expire, it remains to be seen what will those tenants do. Will they downsize? Will they just tell the landlord ‘I’m not renewing?’” Maas said. “We just don’t know.”

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