Healthy quarter for downtown offices
More space is occupied, rates are on the rise and buildings are changing hands.
(As seen on WZZM TV 13) In its second quarter market review, the Commercial Alliance of Realtors pointed out the downtown office scene is changing.
Some property owners are making significant capital improvements. Others are making space for ground-floor retail in common areas. Downtown addresses CAR mentioned include 99 Monroe, 77 Monroe, 50 Louis, 125 Ottawa, 40 Pearl and McKay Tower on Monroe Center, which now has a ballroom.
But there are other changes underway or soon to be started. One of the most notable is the new $28 million Arena Place project, a Class A office structure to be built near Van Andel Arena. When it’s finished, downtown will have its first new office building in the last two decades.
In addition, 616 Development soon will move into the second-floor office space it carved out for itself in its renovation of the Kendall Building. Tower Pinkster will occupy the second floor of the former Junior Achievement building once Locus Development wraps up that project.
Smith Haughey is expanding its office in the Ledyard Building. Third Coast Development Partners will add an office building to its Mid Towne Development along the Medical Mile and is finishing up some offices on Michigan Street.
CAR reported nearly half of the non-owner-occupied office buildings in the district changed hands last year, and it’s the new owners that are responsible for most of the changes.
The CAR report also pointed out that the healthy number of residential projects marked for downtown should lead to more opportunities for the district’s office buildings.
“As more apartment units become occupied, the demand for downtown retail should increase, giving buildings owners the option of rededicating street-level space for retail use.”
The alliance said leasing activity in the second quarter was up by 30 percent from the same period a year ago and added that lease rates were creeping up.
Rates for Class A space ranged from $18.50 to $22 a square foot, up by 16 percent from 2012. Class B rates ran from $14 to $17.50 a foot in the second quarter, an increase of 13 percent over last year. The report also cited that leases are being signed for longer periods, an indication economic conditions have improved.
“Lenders are showing more signs of recovery through the approval of 10-year loans, as opposed to five-year loans. Borrowers are finding that local and regional banks are interested in working with them, and willing to construct longer-term loans to accommodate their needs,” read the CAR report.
The second quarter report from Colliers International of West Michigan said downtown Class B buildings led the market’s absorption figures with 43,764 square feet. That figure is 37 percent of the 119,650 total square footage.
“After 10 straight quarters of positive absorption — the last of which posted the largest amount since 2007 — there is no question that the office sector is performing like a well-oiled machine. Vacancy rates have dropped 74 basis points and are expected to continue this downward trend for the remainder of the year,” read the Colliers report.
Colliers International also forecast net absorption, rental rates and construction will continue to rise over the next three months. The downtown market has 80 office buildings with 5.1 million square feet of space.
X Ventures, CWD Real Estate Investment, NAI Wisinski of West Michigan and the Genzink Appraisal Co. contributed to the CAR report.