Construction, Economic Development, and Real Estate

Business forecast: Sunny in 2014

January 31, 2014
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Paul Isely
GVSU economics professor Paul Isely speaks at the West Michigan Economic & Real Estate Forecast.

Winter might be torturing West Michigan with record-cold temperatures, but economic forecasters are seeing sunnier days ahead.

Speakers at this morning’s 2014 West Michigan Commercial Real Estate Forecast, hosted by Colliers International West Michigan and Grand Valley State University, declared that a forecast of modest growth and expansion looked to be in West Michigan’s future for the upcoming year.

Paul Isely, professor and interim associate dean of economics at GVSU’s Seidman College of Business, presented on an economic overview, and Duke Suwyn, president and CEO at Colliers, presented on the West Michigan market overview. K.C. Conway, executive managing director for Colliers in Greater Atlanta, was delayed by the weather but still gave his address over the phone.

Isely’s findings revealed that allindicators point to continued growth in West Michigan. In 2014, employment is expected to grow by 2.7 percent to 3.1 percent; sales are expected to increase by 2.4 percent to 2.8 percent; and exports are expected to grow between 8 percent and 9.2 percent, he said.

He praised automotive manufacturing for pulling Michigan’s economy out of the recession.

“In West Michigan, at the rate that we’ve been (experiencing) employment growth, we only have about 20,000 more workers before we start seeing wage inflation,” he said. “So, we’re reaching the end of the cheap run and you’re going to start having pressure to change your wages because at that point you’re going to be fighting over workers.”

Isely’s findings also revealed that:

  • More than half of respondents (69 percent) expect to hire next year.
  • Of the persons hired, about 76 percent are expected to be permanent workers.
  • The numbers corroborate the continued improvement in the labor market in 2014.
  • There are slightly stronger expectations compared to last year on sales.
  • Overall growth will be slightly higher than last year.

West Michigan’s confidence index is above 70 percent, Isely said, which is the highest it’s been since 2000.

“More than 50 percent of the people who became unemployed last week became unemployed because they quit their job,” he said. “That’s a true measure of optimism because you don’t quit your job unless you know you’re going to be able to survive it.”

Not everything looks good for 2014, however. The federal government debt battles and the Affordable Care Act both hurt the economy, Isely said. Additionally, people in Michigan are late on debt again, which means they’re pushing themselves a little bit too far, he said. The school systems also are bringing down the numbers.

Grand Rapids’ strength is that it is easy to do business here, Isely said, but its weakness is just about everything else.

“If you’re in a city that has a good school system, you’re above your high prices now from 2006,” he said. “If you’re in a city that has more questionable school systems, like Grand Rapids, you’ll see that we’re above our 2000 price but we’re nowhere near our high end. You’ll also notice that the distress price is closing in on the non-distress price.”

Suwyn’s report focused on construction, interest rates and land. He praised developers for their imaginative reuse of space, saying that “a lack of good quality manufacturing inventory causes us to do creative things,” citing Gordon Foods Service and CHEP for their corporate developments.

“Given the cost of construction, interest (rates) and land, looking back a few years and looking forward a few years, all three of those are probably going to be rising and have risen in the past,” he said.

The impact is that in 2010 what would have cost developers $2.70 a foot, as a comparative number, is probably going to be about 27 percent more at the end of 2014 and even higher in 2016, he said, adding that developers should not hold off much longer on making decisions.

The Colliers real estate report indicated:

  • Vacancy rates dropped to a new low of 6.62 percent with 865,674 square feet of absorption, though sale and lease volume dropped this year due to limited inventory. Transaction velocity will continue to decrease until more quality space is added to the market.
  • Michigan’s industrial sector is driving the region’s economic resurgence. Unprecedented low vacancy rates and an increased level of construction offer proof that West Michigan has made major strides over the past year.
  • The region will continue to experience an increase in build-to-suit projects like that of CHEP Pallets’ 85,000-square-foot building and 65,000-square-foot expansion; Gourmet International’s 115,000-square-foot build-to-suit, and Alliance Beverage’s 275,000-square-foot build-to-suit.
  • An increase in demand for vacant land is coming as more build-to-suit and speculative construction projects remain on the horizon.
  • With more jobs becoming available, consumer spending will increase and production levels for manufacturers will follow suit through all of 2014.

“The activity in investment in West Michigan, the number of transactions, has gone back and equaled our previous high in the crazy times of 2007,” he said. “All property types were active, particularly led by apartments and industrial, also some retail and office.”

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