Economic Development and Real Estate

Real estate: A waiting game

Demand for downtown property continues to climb; suburban markets will be forced to counter.

October 28, 2016
| By Pat Evans |
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Downtown Grand Rapids is in the midst of a waiting game.

According to Colliers West Michigan Research Analyst Jeff Hainer, real estate firms are waiting for the downtown craze to wane. As demand for downtown real estate of all types continues to climb, pushing vacancy levels to historic lows, the suburban markets eventually will be pushed to counter, Hainer said.

“We’re seeing a lot of push to locate business downtown and their workers downtown for the work-live-play downtown lifestyle,” Hainer said. “But it’s all cyclical, and at some point, downtown will be saturated. And there are those who don’t want to be downtown and move back out to the suburbs.”

Hainer said there’s a surge of new construction across West Michigan, a trend Colliers predicted at its beginning of the year forecast event, despite high construction prices holding back most developers at the time.

Still, many of the new projects under construction have tenants attached to the building, with very little speculative space being built.

Hainer said many Colliers clients are asking where they go as open real estate space continues to shrink, with downtown office space vacancy approximately 10 percent.

“We’re seeing a lot more build-to-suit, but developers are still hesitant to build too much space,” Hainer said.

Despite the general hesitancy to build too much space, Hainer said developers are beginning to build in some extra speculative space components in built-to-suit projects. The new construction is in both downtown and suburban areas.

“Grand Rapids is not known as a market for a lot of spec space, but we’re starting to see that,” he said. “Most projects are filled up, but as developers know the market is expanding and have confidence in the West Michigan economy, there is some spec space.”

Outside of CWD Real Estate Investment’s renovation work at multiple office sites downtown, including 250 Monroe Ave., 200 and 300 Ottawa Ave. and the future work at Fifth Third Center, Hainer said little property is left for redevelopment downtown. The Keeler Building, 56 N. Division Ave., still is up in the air for future plans, as it continues to sit vacant, he said.

Renovated and new office space in the downtown area eventually will further push the suburban markets to push forward as well, Hainer said. Currently, many “second and third generation” office buildings in the suburbs need some “love and care” but are falling behind.

The cycle will catch up and force the hand of landlords.

“People are patient right now, hoping tenants come to office centers as is,” Hainer said. “We’re predicting downtown will become so amenity rich that the suburban markets will be under increasing pressure to add those same amenities. We do see that redevelopment down the line.”

South of Grand Rapids will be of particular interest to watch in the coming months and years, Hainer said.

Colliers, which brokered the deals of the Steelcase Pyramid to bring Switch to West Michigan, has had multiple conversations regarding the Gaines Township area and what is expected as a result of the Nevada-based data storage company’s location in West Michigan.

Early indicators, Hainer said, are the wave of Switch and client employees will want to live on the periphery of downtown Grand Rapids and close to the pyramid. He cited two land sales for hotels brokered by NAI Wisinski of West Michigan as some of the early developments catering to Switch.

“We’re going to see some significant development out there, new office and residential,” he said. “As the head count increases, retail follows. There will be a contingent of the workforce that wants to be outside of downtown and that will be a popular destination in the coming future.”

In the meantime, as downtown continues to be the hot spot, Hainer said the key for office space to be occupied will be parking. He said new and existing buildings with accompanying parking options are doing well.

New projects, either completed, under construction or in planning, have some form of parking to satisfy consumer demand, Hainer said, mentioning Arena Place, 234 Market Ave. SW, 150 Ottawa Ave. NW and Studio C!.

“We’re seeing new buildings going up and all have parking components, because they have to and need them,” he said. “That’s the biggest topic of discussion for conversations between landlords and possible tenants is, ‘We love the idea of being downtown, but where do we park?’”

Another point of cyclical pressure to watch in the near future will be residential space, Hainer said. As the city nears 6,000 units, Hainer said there will be a time when downtown residential demand peaks.

“When we do reach that plateau, it will be a race to be built and filled,” he said. “It’ll be interesting to see where that point is in terms of number of units. I don’t think we’re quite there yet, because there is still room for that downtown demand.”

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