West Michigan economic forecast shows 'continuing growth'
Sunnier economic days are in store for Michigan this year, according to Colliers International’s latest report on economic activity and commercial real estate.
This year’s West Michigan Economic and Commercial Real Estate Forecast, sponsored by Colliers International and Grand Valley State University’s Seidman College of Business, revealed that the real estate recovery is still ongoing, with capital becoming increasingly available, while quality inventory is becoming a concern.
Paul Isely, GVSU professor of economics, predicts West Michigan will see modest yet continuing growth for 2013.
Isely’s slideshow revealed employment increases will be 1.7 percent to 2.3 percent, with an overall sales growth of 2.4 percent. Exports will increase slower than last year at 5.4 percent, he said, and health-related sectors and manufacturing will also see slow growth.
“Manufacturing growth is slowing down a little bit from what we saw last year, and the coming year is going to look a lot like last year did,” he said. “In Michigan, that’s the automotive piece. . . . Despite the fact that we have a really good push cycle going with automotive, it might not be enough.”
Isely said 56 percent of his survey respondents expect to hire next year, and of those hiring, 60 percent are expected to be permanent workers. It’s slow improvement, he said, but better than the region has seen in recent years.
National growth is expected to pick up after the budget deal, Isely said, adding that the instability and dysfunction of the current federal government has been a caveat to predicting the numbers. Nonetheless, Isely pegged America’s overall GDP growth this year at about 2 to 3 percent.
K.C. Conway, executive managing director of market analytics at Colliers International, offered predictions on the industries that might matter the most in 2013.
Michigan’s housing recovery will stimulate sub office, retail and warehouse demand, he said. Several Michigan cities are showing up on national lists of improving home markets, including Grand Rapids, Holland and Kalamazoo.
“Michigan ranks fourth with most grouped market for housing. If anyone’s doubting the housing recovery story, I think this is the proof of it,” Conway said. “When you have capital where investors are asking, ‘Why Grand Rapids?’ here’s the kind of stuff that they need. Many of them . . . have no idea where Grand Rapids is at (economically), and they don’t understand your story. We’ve got to get this story out. And these are the tools.”
Conway predicts that progress will accelerate in the second half of this year, forecasting at least a 2-percent growth in GDP during the latter six months.
He sees opportunities in the areas of intellectual capital, energy and education and industrial properties, noting to especially keep an eye on port and inland distribution, where retailers are re-shaping supply chains. He also predicts another year of job growth.
There are possible storm clouds, however. Conway sees danger in congressional dysfunction leading to a second debt downgrade and a possible International Longshoremen’s Association port strike impacting ports on the Eastern Seaboard and Gulf Region.
Colliers also released forecasts for specific industry markets.
2012 saw the absorption of much of the premium space. A lack of inventory will lead to alternative space solutions. New construction (speculative projects) will be the theme for manufacturing space throughout the year.
- Activity will continue, but solutions will be more difficult to come by, and rates will continue to climb
- Due to space being scarce, property owners will slowly raise rental rates and reduce tenant improvement allowances and free rent offerings
- Expect to see deals being signed for longer terms than in the past several years
- Expect to see an increase in demand for vacant land
- Build-to-suit projects will play a larger role in the West Michigan industrial market
- Building owners looking to sell should be confident in asking a higher price due to competition for space in the market
- Users need to be willing to be creative to find solutions to their space needs
Activity will escalate in 2013 based on current economic conditions, historically low interest rates and sufficient available financing options.
- Multiple major transactions of downtown office buildings have brought new, well-capitalized buyers. These buyers are improving buildings, forcing higher rents in the central business district
- Expect to see continued activity from out-of-market investors, especially as the industrial market continues to exhibit strength
- Buyers of high profile downtown transactions will conclude building renovations/upgrades, resulting in elevated rents
- Buyer activity will remain strong as buyers take advantage of historically low interest rates
- As distressed properties remain a significantly low proportion of sales, prices will continue at an upward trend
- In 2013, look for speculative, new construction of multi-family developments in both downtown and suburban markets
- Due to a lack of current activity in retail investments, anticipate this segment to see the greatest increase in activity in 2013 and beyond
- Activity for single tenant, net-leased assets in premium locations will remain very strong
- Transaction volume will continue to increase in all sectors, with multi family and retail seeing the largest upswing
West Michigan’s office market will continue to improve at a slow and steady pace through 2013. Anticipate 12 quarters of positive absorption.
- The West Michigan office market has seen growth over eight straight quarters of positive absorption. This trend should continue as vacancies have dropped by 1.5 percent over the last year
- Anticipate new construction in 2013 as office space is becoming a premium
- Options for high-quality inventory, especially downtown, have dramatically decreased
- As landlords complete renovation projects, expect rates to climb
- Competition for premium office space will continue
National tenants turned a considerable amount of attention toward West Michigan in 2012, and this trend is expected to continue, which will ensure absorption in 2013.
- With many new tenants to the market and vacancy rates contracting, anticipate seeing supplementary, speculative and build-to-suit construction in the retail market soon
- For high-quality space in premium locations, expect rates to rise as retailers continue to gobble up space in the primary corridors
- Completion of Grand Rapids’ Downtown Market will contribute to absorption in 2013 and the overall retail presence as it brings in a restaurant, brewery and variety of shops