BOMA Survey Returns Turns SemiAnnual

June 5, 2002
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GRAND RAPIDS — The long-awaited and much-anticipated BOMA Office Occupancy Survey is out, available and even online — the first such report, of what had been an annual survey, in two years.

But the effort, undertaken by the Building Owners and Managers Association of Greater Grand Rapids, really isn’t a survey of the local office market. It’s more like a census — as more buildings were included in the current edition than in previous versions.

In addition, it’s not an annual survey — er, census — any more, because BOMA says it plans to issue a pair of reports each year. The next one is tentatively set to be released in late summer.

Why the changes?

Well, the report is going semi-annual because BOMA President Joseph Zainea said the market is so dynamic that the data contained in an annual survey would be outdated within three or four months of its release.

BOMA’s ultimate goal is to issue the report on a quarterly basis. But for now, Zainea said a semi-annual edition will have to do.

As for going from a survey to a census, BOMA simply feels the change better represents the market. The new report, which features year 2000 data, contains 1.8 million more square feet of office space than was found in the 1999 edition, which had data from 1998.

But of that additional 1.8 million square feet, Zainea said only about one-third, or roughly 600,000 square feet, was new office space built over those two years.

“It isn’t so much a survey as it is a census,” said Zainea, also vice president of the Waters Corp., of the report. “It (the space) was there before and just wasn’t getting counted.”

To explain further, the BOMA report shows that the office market grew by 16 percent from 1998 to 2000. But the city didn’t see that much new construction in 24 months. That amount of work would have equaled about a half-dozen Bridgewater Places.

Instead, BOMA extended its statistical reach.

For instance, the medical office buildings that line Michigan Street from Bostwick Avenue east to the Beltline were included in the downtown sector. It’s the first time these structures have made the BOMA report, and the first time the buildings were added to the downtown total.

In fact, new downtown construction only added 197,000 square feet from the last BOMA report, an increase of 2.6 percent. In comparison, the central business district gained 318,000 new square feet from 1997 to 1998.

The vacancy rate, however, fell by 2 percent last year from 1998, dropping to 14 percent, while the median asking rate rose by 50 cents per square foot, going from $14.50 in 1998 to $15 last year.

Across the 13 sectors that make up the suburban office market, new construction added 465,000 square feet.

The demand for space in the suburbs grew, too, as another one million square feet became occupied between 1998 and 2000, which held the vacancy rate at 9 percent.

The suburban sector that grew the most over the past two years was the East Beltline corridor. It gained 126,000 new square feet and boosted its occupancy rate by 4 percent to 94 percent.

The Cascade/I-96 sector also tallied substantial gains in new construction, 289,000 square feet, and occupancy, from 91 percent to 93 percent.

But the suburban sector to keep an eye on may be Grandville, an area that stretches into eastern Ottawa County.

In two years, the office market there added four new buildings, while maintaining its 94-percent occupancy rate. The ongoing retail growth, sparked by the 1999 opening of the RiverTown Crossings Mall, also may lead to more office development there.

Another change in the suburban market is how landlords charge tenants. Since 1998, the report shows that more have moved to triple-net rates.

“The owner charges a base rate to the tenant, then the cost of heating, cooling, common-area maintenance, taxes, insurance, landscaping and all of those expenses are rolled-up, totaled and then pro-rated to the tenants,” said Zainea.

“The base rate might be $12 a square foot. But the total of all those expenses might be $5 a foot. So a tenant would pay $17 a foot.”

In contrast, Zainea said most downtown building owners use a gross, full-service charge to their tenants. “The owner absorbs all of those expenses and then quotes a rent that covers it all,” he said. The Grand Rapids Medical Education and Research Center's new lease at the Berkey & Gay Building on North Monroe, however, has a triple-net rate.

The basic difference between the two is the risk involved. Under triple-net, the tenant assumes the risk, while landlords do under the full-service lease. Increasing energy costs may be the reason why more suburban owners have moved to triple-net.

Another first for this year’s report is it’s available online at www.bomagr.com. Members have free access to it.

Non-members can visit the site and either order a printed copy or join BOMA and gain online access to the report.

BOMA was established in 1968 and is one of 95 BOMA organizations in the U.S. and Canada. Its members are commercial real estate owners, investors, developers and building managers.

The local chapter is federated with BOMA International, which speaks for the commercial real estate industry from Washington, D.C.

Overall, Zainea said the report paints a solid picture of the local office market. But as he and other BOMA members know, things can change rapidly in such a dynamic market.

“We tend to report on what has happened and we don’t usually like to prognosticate. We leave that to others, I guess,” said Zainea.

“By and large, the last couple of years have been good in terms of the growth in the market and tenant absorption. That’s the important thing — how much space is getting absorbed — and so far that has looked good.”

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