Construction, Economic Development, and Real Estate

Demand for downtown office space could wane

Parking supply, cost might force companies to settle for suburb locations.

October 14, 2016
| By Pat Evans |
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Downtown office transactions could cool down in the long term — but not yet.

NAI Wisinski of West Michigan broker Mary Anne Wisinski-Rosely said while downtown office space still is hot, parking supply and cost is beginning to be a large piece of the discussion. The Business Journal spoke to Wisinski-Rosely and a group of NAI Wisinski brokers in anticipation of the firm’s third quarter market reports.

“Time will tell, but people still expect it close to their office,” Wisinski-Rosely said of downtown parking. “People don’t seem to want to pay to play.”

She said those are the general feelings when speaking with existing and potential tenants of downtown area office buildings NAI Wisinski represents. The long-term effects are yet to be determined, she said, and parking supply and mindsets might change in the coming years.

Still, she said employers are weighing the balance of whether to offer employees the downtown office luxury while paying more for parking. She said in the long term, it could cause office users to move back toward the suburbs or at least the fringe of downtown, where parking generally is ample and free or cheap.

NAI Wisinski General Manager Brad Bruinsma said the city and Downtown Grand Rapids Inc. are trying to shift the parking thinking, but he added it might be a bit “ahead of our time” without the necessary established mass transit system to supplement that shift in thinking.

He also said at some point, the downtown parking supply must be increased to satisfy existing users and potential developments, just as the Grand Rapids Parking Commission has discussed in the past.

Orion Construction Director of Business Development John Wheeler told the Business Journal this summer that the city did swing the pendulum too far with alternative transportation rhetoric but said parking is, and will continue to be, fine downtown.

“I have faith in our parking commission and the way they’ve balanced parking over the past 30 years,” Wheeler said. “When there’s a need, they jump in and fill it.”

The discussion is ongoing, however, and Wisinski-Rosely said tenants still are concerned over late-night safety of lots, cost and availability.

“It’s too early to determine the overall effect,” she said. “The trend is still to be downtown.”

Outside of the office environment, NAI Wisinski industrial advisor Stu Kingma said his business slowed this summer but picked up following Labor Day. Winsinski-Rosely said in real estate, there’s usually a slowdown for the elections as well, but there is no indication of that trend this year.

“This summer, it was nice and people had recovered from the downturn and had a desire to spend money and time away,” Kingma said. “Now, I’m back to how do I get this all done in a day?”

Inventory still is an issue in the industrial segment, Kingma said, as available buildings are at historic lows. As existing buildings are filled, Kingma said he’s seen an increase in vacant land deals — currently making up approximately 25 percent of his deals.

High construction costs, however, are keeping vacant land deals lower than potentially possible, he said.

“They can’t buy what they need, so build it,” Kingma said. “Construction costs are high, so there is a wait-and-see attitude, which can cause the market to pause.”

“Creative solutions” also have emerged, Kingma said, which includes transactions involving for-lease and unlisted properties.

Demand can be seen in an anecdote industrial advisor Kurt Kunst told involving a property off of Three Mile Road priced $10 per square foot more than it should have been. Kunst said the price hike is unusual in the industrial segment, but a full cash offer was made within 48 hours of listing.

In retail, advisor Rod Alderink said hotels are among the more interesting aspects to watch, as the firm completed two land sales in Gaines Township recently for hotel development. Alderink said the ownership groups cited the Switch data center as their reasoning.

Other communities also are seeing an increase in hotel activity, including Comstock Park and Grandville, he said. Wisinski-Rosely said the increase likely is because of high overall county occupancy rates and the need for more rooms to attract major conventions at DeVos Place.

Alderink said national retailers are putting an increased focus on Grand Rapids and Michigan, with an interest in Class A retail space, leaving more Class B and C available. He said it appears anecdotally other secondary markets in the Midwest and United States aren’t experiencing the growth Grand Rapids currently is.

Bruinsma said overall, there still is pent-up demand in Grand Rapids for new developments of all kinds with investment sidelined waiting for opportunities.

“Grand Rapids is alive and well, and that story is getting out there,” Alderink said. “Retailers want in on Michigan, sometimes Grand Rapids first over Detroit. That’s been a paradigm shift over the last three to five years.”

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