Office Market Turns Toward Landlords

November 20, 2006
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GRAND RAPIDS — Modest growth reflects the market for office space in the Grand Rapids area this year, according to Grubb & Ellis/Paramount Commerce’s third quarter survey.

Vacancy rates improved a notch, moving forward from 17.1 percent to 16.9 percent in 2006, the survey revealed.

Average rental rates for Class A space are $21.74 per square foot in downtown Grand Rapids and $19.26 per square foot in the suburbs.

Expect rents to move up and concessions to move down, added Matthew Abraham, Grubb & Ellis/Paramount Commerce research manager, especially in light of higher demand for Class A space in downtown Grand Rapids.

“This will have the effect of putting landlords into the driver’s seat. In the months ahead, we can expect to see rental rates increase while landlord concessions decrease in key parts of the West Michigan market,” Abraham said.

Demand for suburban space is steady, with more offices being constructed. Abraham pointed to the early development of mostly retail space at the Kalamazoo Avenue exit of M-6 and to the movement of retail, office and commercial development now underway at the Byron Center Avenue interchange, particularly at Metro Health Village in Wyoming. Abraham predicted that development will move farther west along M-6 to Wilson Avenue.

More demand for offices is anticipated for the medical services area along Michigan Street, although Abraham noted that space constructed specifically for medical use, such as doctor’s examination rooms, is not included in the survey.

Including 94,000 square feet of Class B and Class C under construction downtown, 200,000 new square feet will be underway by New Year’s Eve. The survey noted that year-to-date absorption is 264,000 square feet, driven primarily by stable demand in the suburbs.

Abraham said he thinks office construction is keeping pace with demand and does not expect a dramatic change in vacancy rates soon. He said he thinks the West Michigan economy is better off than state reports indicate.

“Grand Rapids is actually having a downward trend for the unemployment rate,” Abraham said. “The reason the state itself is looking so bad has a lot of to do with the east side of the state and the auto industry. They outweigh us. If you split the state, West Michigan unemployment is actually going down.”

Michigan’s unemployment rate inched down to 6.9 percent for October from 7.1 percent in September, the Michigan Department of Labor & Economic Growth announced last week. That’s a half-percentage point above the 6.4 percent rate for October 2005.

Statistics from the U.S. Department of Labor’s Bureau of Labor Statistics bear out Abraham’s contention that unemployment is higher in Michigan’s eastern areas. However, unemployment has moved up in the Grand Rapids-Wyoming area in 2006, at 6 percent in September compared to 5.2 percent in September 2005. Unemployment stood at 5.9 percent in August 2006 and 5.2 percent in August 2005.

Abraham noted that an outside investor had purchased more than 500,000 feet of downtown office space, which he said he expects will soon have a stabilizing effect on rental rates.

Three Oaks Group LLC of Ann Arbor last month became the second owner of the Waters Building in its more than a century of existence. Within the past two years, Three Oaks also has acquired the Trust Building and the Ledyard Building, as well as four other office space purchases.    

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