Focus, Economic Development, and Retail

Area retail continues on strong path

New tenants are coming in and more new construction is expected.

May 3, 2013
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Area retail continues on strong path
The sale of the Rivertown Center in Grandville represented one of the area's first retail strips sold at market rate since the economic downturn. Courtesy of Colliers International of West Michigan

Most economists claim consumer spending accounts for at least two-thirds of a location’s economy. Some have even said retail spending in a good economy amounts to as much as 70 percent of all spending.

If that’s the case, the metro Grand Rapids area should feel good about what has been happening in that vital economic sector, according to the latest quarterly retail report from Colliers International of West Michigan.

“The West Michigan market is showing signs of prosperity with strong consumer confidence and steady sales for retailers across the board,” wrote David Schafer, Colliers research director, who, with analyst Logan Mentz, produced the firm’s Research and Forecast retail report covering the year’s first three months.

“Many new tenants have entered the market and others are actively searching for more locations,” Schafer added.

Firehouse Subs is one of the new tenants to which Schafer referred: It opened in Knapp’s Corner along East Beltline Avenue. Another is the TJ Maxx-Home Goods store that has set up shop in the recently redesigned Centerpointe Mall at East Beltline and 28th Street SE. Other recent openings have come from DSW, ULTA and World Market. Cabela’s, of course, also opened last month in Grandville’s Bucktown.

The Colliers International report noted that Centerpointe Mall, formerly Eastbrook Mall, may have an interesting domino effect on the retail landscape that could lead to further investment in the sector. Because of the mall’s redesign, big-box building supply company Menards is looking for a new and larger site as it is leaving its Centerpointe location.

“This type of redevelopment has proven to be a success for the former mall and it is expected that other outdated centers will be forced to implement a similar plan to restructure their image,” wrote Schafer.

The Colliers report also pointed out retail construction is continuing, something the firm has mentioned over the last several quarters. “The trend is still present as more and more shovels are hitting the dirt,” wrote Schafer.

The new Jimmy John’s on Plainfield Avenue is nearly done. The old Damon’s restaurant site in the Alpine corridor will be razed to make way for a new 13,000-square-foot strip mall that will include Verizon Wireless, Sherwin Williams Paint and Bagger Dave’s as tenants. A new Goodwill store will be built in front of Rogers Plaza in Wyoming.

On top of those, two new hotels are in the works. A Marriott Residence Inn is set to be built behind Art Van Furniture on 28th Street SE, and a new Embassy Suites is set for North Monroe Avenue across from Sixth Street Bridge Park.

“This amount of construction is promising; however, an additional influx of inventory will be required to satisfy the demand of the current market conditions. Since space is the limiting factor, it is expected that the main retail submarkets will be forced to expand outward, pushing new construction toward the brink of major activity,” wrote Schafer.

“The Alpine corridor should see this expansion moving both north and south, while the Rivertown corridor will notice it moving further east and west.”

Schafer wrote that the sale of the 60,876-square-foot Rivertown Center in Grandville serves as a positive indicator of what’s going on in the market. He said it was one of the first retail strips sold at a market rate since the economic downturn. The center’s price tag was $4.2 million or nearly $69 a square foot.

“This (sale) will serve as a great comparable for similar properties attempting to sell for a higher price that haven’t yet been justified by other backward-looking appraisals.”

Over the first three months, rental rates rose while vacancy rates fell in the market, as the positive absorption of space continued. Sales and lease velocity remained strong.

“The lack of available space in the main retail arteries will eventually pose a problem for new tenants wishing to enter the market,” wrote Schafer. “We are seeing the landlords of high quality space returning to the position of power when it comes to lease negotiations demanding higher rents and longer terms.”

The Colliers International report also peered into its retail crystal ball and came up with a few things to look for down the road.

  • The major retail corridors are expected to remain tight with decreasing vacancy rates. The few remaining vacant lots will be developed and older, outdated buildings will be torn down or redeveloped into newer structures for incoming tenants.
  • Activity will pick up as more retailers secure space in time to open for the busy summer season.
  • Look for development surrounding the P.F. Chang’s and D&W at Knapp and East Beltline. This area is experiencing a heavy amount of interest and its prime location will attract tenants who wish to build or lease a brand new building.

Retail Spaces Have Begun to Fill Up

The vacancy rate was in single digits in four of the six retail submarkets in the metro area for the first quarter of this year. More than 22,000 square feet of space were absorbed during the first three months, which let the market’s overall vacancy rate slip below 10 percent. Available space was especially tight on Alpine Avenue and East Beltline Avenue.
 
Retail Submarkets Number of Buildings Total Square Feet Total Vacant Square Feet Vacancy Rate
28th Street SE 208 7,009,204 621,129 8.9%
28th Street SW 93 1,954,468 486,868 25.0%
Alpine Avenue 90 2,812,504 85,520 3.0%
East Beltline Avenue 23 754,649 36,248 4.8%
Plainfield/Northland 96 2,280,220 338,477 14.8%
Rivertown Parkway 43 3,305,778 238,037 7.2%
Total 553 18,107,823 1,806,279 9.9%

Source: Colliers International of West Michigan, Research & Forecast Report, Jan. 1-March 31, 2013

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