Economic Development and Real Estate

Real estate markets growing

But experts caution there are limits to the expansion.

July 22, 2016
| By Pat Evans |
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No signs of impending doom mar the real estate world, according to two real estate firm market reports. 

Colliers West Michigan and NAI Wisinski of West Michigan both released second-quarter market reports for the office, industrial and retail markets last week, and both continue to see positive numbers.

Absorption of retail space remains positive, with four straight quarters of growth, according to Colliers, including more retail in mixed-use developments opening in the downtown submarket. 

Colliers and NAI each reported retail vacancy rates falling below 10 percent.

Downtown and the West Side are gaining steam in retail, with a variety of projects finishing up or proposed, including major out-of-market breweries New Holland and Atwater opening up, as well as a Rockford Construction-proposed project including a near-downtown Meijer.

Switch Ltd. locating in the former Steelcase Pyramid likely will bring an increased focus on the M-6 and Broadmoor corridor, likely with “explosive growth,” according to Colliers retail advisor Mark Ansara.

Along with new areas, traditional retail corridors such as East Beltline, 28th Street and downtown will continue to grow as the city gains attention from national retailers. 

“The area has gained so much publicity over recent years that the nationals are taking notice and looking at this market first before Detroit and the east side of the state,” Colliers retail advisor Chris Prins said. “But the question is still out there: With main corridors almost full, where will be the next retail hot spot?”

Both Colliers and NAI said absorption and vacancy declines are slowing, which could cause problems.

“As we move into the second half of 2016, the lack of inventory for Class A space will be the biggest challenge, unless new construction starts to pick up,” NAI partner Rod Alderink said. “Class B absorption will continue to be positive, and vacancy rates should continue to decrease across all sectors.”

Both firms have watched office retail activity slow down through the first half of 2016 but retain a positive absorption rate for the 22nd straight quarter. 

NAI reported a historically low 8.5 percent vacancy rate in the office sector, with particularly strong activity in the suburban submarkets, for three primary factors: parking, rental rate and space availability.

“We anticipate the demand to purchase office buildings will remain strong, however supply will continue to be limited,” NAI partner Mary Anne Wisinski-Rosely said. “This demand-supply relationship will continue to put upward pressure on both sales prices and lease rates and will lead to more new construction projects.”

Colliers reported landlords are seeking longer-term leases to justify build-out costs, with tenants remaining hesitant.

According to Colliers, industrial real estate is reaching the end of the expansion phase, second in a four-phase cycle. In the expansion phase, rental rates, employment and occupancy are growing while new construction is even. In the next phase — oversupply — the four statistics reverse before heading into the fourth phase: recession.

Colliers has all submarket industrial occupancy rates above 92.5 percent, including the northeast submarket, at 98 percent occupied. Colliers reported a 6 percent industrial vacancy rate.

NAI reported that the industrial vacancy rate in Grand Rapids has fallen to 3.3 percent, that there is more than 400,000 square feet of construction underway and that rental rates have held fairly steady over the past four quarters.

“The current inventory levels and vacancy rates will continue to push both new construction and land sales to the forefront of future activity,” NAI principal Stu Kingma said, adding that they will keep driving both sales price and lease rates.

Colliers said there is still a lack of supply in industrial, and companies in need of space are pursuing options and considering new construction. Colliers also reported a skilled labor shortage for the industrial sector is hampering the growth of some companies.

“Due to longer delivery lead times and higher costs, users have largely avoided new construction in the past,” Colliers industrial advisor Matt Abraham said. “However, we see construction as an inevitable solution to satisfy the growing pent-up demand.”

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