Real estate industry looks promising on all fronts
NAI Wisinski report predicts more retailers will call West Michigan home.
A strong end to last year year has NAI Wisinski of West Michigan looking forward to 2016.
The firm released its 2015 end-of-year report last week, and most signs point to strong segments across the real estate board.
The report was put together using information from CoStar Realty, U.S. Bureau of Labor Statistics, U.S. Census Bureau and W.E. Upjohn Institute.
In retail, the firm is excited about development opportunities from several major projects that entered the Grand Rapids market in 2015, including Trader Joe’s, West Elm, Orvis, and the 75-store Tanger Outlets in Byron Center.
Two more major retailers are expected to join the area in 2016: Chick-fil-A and Freddy’s Frozen Custard & Steakburgers. Field & Stream will make an entry into West Michigan with a store in Kalamazoo.
“Our West Michigan economy continues to receive accolades as one of the fastest growing in the county, ranked in similar company with Houston and Denver,” NAI Principal Rod Alderink said in the report. “Grand Rapids is no longer seen as an in-fill location after retailers have ventured to Chicago and Detroit.”
Retail construction across the country is slumping, but West Michigan has seen retail vacancy rates fall.
Asking rates and net absorption in the market are both rising compared to the fourth quarter of 2014, with average triple net rental rates sitting at about $10 for the entire market, according to the report.
Asking rates for office space have gone up over the same time period, with construction increasing, as well. The office vacancy rate is falling, according to the report, but so is net absorption.
The average Class A office rental rate sits at $18.30 a square foot, with Class B and C rates coming in at $12.21. The Class A vacancy rate is nearing 5 percent, with B and C lagging behind at just below 10 percent.
Both segments saw nearly 200,000 square feet of new construction in 2015.
According to the NAI report, downtown has seen much of the office growth, with outlying neighborhoods such as the west side, North Monroe area and Michigan Street also gaining traction because of lower rates and cheaper parking. The report predicts further office market growth on the north and west sides of downtown.
The report also expects an increase in office demand following the news that Switch will move into the former Steelcase Pyramid building.
The new office space coming to market is largely preleased, according to the report.
“The market has seen a steady decrease in vacancy rates, especially with Class A office space,” NAI principal Mary Anne Wisinski-Rosely said. “Businesses have seen the advantage of improving their space at a lower rate by moving into vacant Class A spaces.”
In the residential sector, Grand Rapids has a 97.7 percent occupancy rate of all unit types, down from 98.6 and 98.4 percent in 2013 and 2014, respectively, due to new supply. Average rents for one-bedroom units sit at $682, with two bedrooms coming in at $802. Average rents of all types have increased by 7.69 percent in the past year.
In the industrial market, the vacancy rate fell from 4.8 percent to 4.1 percent with demand for space continuing to increase.
Industrial rental rates for manufacturing have stayed relatively flat since at least 2011 at about $3 a square foot. Warehouse space took a significant jump in 2015 from $3 to $5 per square foot.
Manufacturing space also saw about 100,000 square feet of new construction in 2015, with more expected to come in 2016.
“Land sales started to increase in numbers during 2015, and that is expected to continue into 2016,” said Stuart Kingma, NAI principal.
“This is a direct result of users not being able to locate suitable building solutions for their industrial real estate requirements within the existing available inventory.”