Economic Development and Real Estate

Commercial real estate market shows economy is rebounding

CAR report shows first-quarter growth for office, retail and industrial segments.

May 10, 2013
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New ownership group excited about Thirty-Eight
MP1, the new ownership group for Thirty-Eight, is very familiar with the building after holding the structure's maintenance contract for the past three years.
With the recent sales of Bridgewater Place, Thirty-Eight and 222 Fulton, the current renovations of the Kendall and former Junior Achievement buildings and a proposal for a new office structure near Van Andel Arena, it’s not surprising the Commercial Association of Realtors reported activity has increased in the downtown office market.

In its just released report that covers the year’s first quarter, CAR of West Michigan found the interest tenants developed last year in downtown office space continued through the first three months of this year. The report also noted half of the market’s office buildings changed owners last year and turnover has led to a repositioning of those structures.

“The first-quarter reports are incredibly promising and illustrate that our economy is rebounding and businesses are investing and preparing themselves for growth,” said John Francis, CAR president, in a statement.

The CAR report said lease rates have stabilized. Class A rates range from $17.50 to $22 a square foot, while Class B rents go for $14 to $16.50, a bit more than last year. The Class C buildings are primarily nonexistent now, as most have been converted into residential structures.

The downtown market isn’t the only one that is booming. The CAR report said smaller suburban offices have sold here and in Holland, Kalamazoo and Muskegon. A good number have been purchased by business owners who decided to buy rather than lease.

“This trend suggests that small business owners believe they have weathered the economic storm and are strengthened,” read the report.

The sales volume for the first quarter in the suburban office market was up by 2 percent from the same period last year, as volume reached $6.8 million from 21 transactions.

“There is a renewed interest in downtown office space, the lakeshore is experiencing revitalization and growth, and the industrial market has rebounded from the lows in 2009,” said Francis.

The inventory of industrial buildings in the market was down by 10 percent from last year due to a sales flurry in the last quarter of 2012. In addition, the buyers tended to be users, not investors. The food-processing and auto industries have experienced a steady growth in the region.

Those sales have helped convert what had been a tenant’s market for years into a landlord’s market. Concessions are down and lease rates are getting close to the asking prices. The industrial vacancy rate is hovering around 7 percent in Kent County and the outlying areas have similar rates. The market’s tight space availability has led to some new industrial construction and “build-to-suit” buys.

As for retail, the CAR report said demand has begun to exceed the existing inventory and that has pushed retailers into some of the secondary markets, like Plainfield Avenue. CAR found similar retail growth in Holland, Grand Haven, Muskegon and Kalamazoo.

“From a leasing perspective, the hot area is Grandville as retailers jockey for position in and near the new Bucktown development, which includes Target and Cabela’s,” said Dave Denton of DAR Development and the CAR Retail Specialty Group.

“Pricing has stabilized on the sale of retail buildings as most of the distressed properties have been reduced and demand is on the rise for quality retail investment properties,” he added.

CAR serves the commercial real estate community throughout West Michigan. Twenty CAR members contributed to the first quarter report.

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