Office Market Grows
And one move by a single company, Blue Cross Blue Shield of West Michigan, helped to transform the landscape of the market over the past year.
Those findings come from the 2005 Annual Office Occupancy Report released by the Building and Owners Management Association (BOMA) of Greater Grand Rapids.
According to the report, the downtown office market had an occupancy rate of 84.55 percent at the start of 2005, a mark down slightly from the 2004 rate of 85.08 percent.
At the same point in time, and over the same period of time, occupancy in the suburbs fell to 81.74 percent from 83.61 percent.
Over the past year, though, the metro office market grew by 350,000 square feet to 14.32 million as new buildings opened for business.
BOMA President Charlie Hoats said more than 144,600 of that new square footage came from seven suburban buildings that opened last year. The remainder opened at 70 Ionia Ave. SW, in the former Steketee’s department store at 86 Monroe Center, and at the American Seating Park at 801 Broadway Ave. on the city’s near West Side.
“It’s great to see the optimism for our future despite the relatively weaker market we have right now,” said Dan Carter, BOMA treasurer and a shareholder at Hungerford, Aldrin, Nichols & Carter PC, a certified public accounting firm.
But roughly 250,000 square feet of space became vacant since the 2004 report.
“A pretty substantial portion of it was lost in the suburban areas. The move to downtown of Blue Cross Blue Shield left a fairly sizable hole there. That is a big piece of it,” said Hoats, who manages properties for Grubb & Ellis/Paramount Properties.
“And that segment of the suburban market had a couple of other fairly significant losses,” he said of the 28th Street and I-96 area.
When Blue Cross moved into Steketee’s and occupied much of the structure’s 96,000 square feet, it stabilized the occupancy rate for the downtown district. Before the nonprofit health insurer arrived at Steketee’s, the building was empty.
But when Blue Cross left for downtown it vacated 44,426 square feet of space at 5540 Glenwood Hills Parkway. Another nearby building at 2600-2680 Horizon also lost 47,645 leased square feet.
Those two moves contributed to the district having its vacant space rise by more than 150,000 square feet and ended up accounting for 60 percent of the 250,000 square feet that became available in the entire market over the last year. That tenant loss gave the 28th Street and I-96 office district the metro area’s lowest occupancy rate, at 65.91 percent.
Other findings from the report include:
- Standale had the metro area’s highest occupancy rate at 92.97 percent.
- Four submarkets had rates above 90 percent: Breton-Burton, Standale, Wyoming and the Northwest sector.
- Cascade and I-96 fell below the 90 percent mark for the first time in several years.
In 2003, the occupancy rate in the Breton-Burton district was just over 60 percent. Last year, it jumped to 91 percent and held that mark at the start of 2005.
The BOMA outlook for downtown is that tenants will continue to have an advantage in lease negotiations for the first half of this year. After that, rent concessions will decrease and lease rates will hold steady for the rest of the year.
As for the suburban districts, BOMA forecasts that tenants will continue to hold the upper hand in lease negotiations for the entire year as plenty of office space is available. Office buildings with efficient space will have occupancy increases in the second half of the year. And large tenants could find lower asking rates in suburban buildings.
The BOMA occupancy report, done with Genzink Appraisal Co., compiles its findings from a voluntary survey of office buildings with over 5,000 square feet in the downtown district and in the 13 submarkets that comprise the suburban market.
Of the 14.32 million square feet of office space in the metro area, nearly 5.85 million is located in the Central Business District and 8.47 million is situated in the submarkets.