Office Occupancy Up Slightly
The 2004 Annual Office Occupancy Report, released last week by the Building Owners and Managers Association (BOMA) of Greater Grand Rapids, showed that the vacancy rate fell by nearly 2 percent from 2003.
For the overall office market, which includes the central business district and 13 suburban areas, the latest occupancy rate stood at 84.7 percent, up from the 2003 rate of 82.8 percent.
The market gained 181,693 square feet of space last year to reach 13.9 million total square feet, and filled 237,612 square feet to chop the vacant space to 2.1 million from 2.3 million in 2003. Five buildings were added to the market last year, all of which were in suburban areas.
BOMA and the Genzink Appraisal Co. surveyed building owners of structures with more than 5,000 square feet of space last fall, completing the study on Sept. 30. The 2004 report is the 13th survey that BOMA has done and the most complete to date, according to BOMA President John Mundell III.
Mundell said BOMA got a more accurate description of building size for the 2004 report and a better definition of what actually qualifies as an office building than in previous years.
“We didn’t survey owner-occupied space,” said Mundell, also vice president and director of brokerage services for CB Richard Ellis in Grand Rapids.
“If a building was a leased entity, then we would survey it. If it was bought by a company, say Spectrum Health, then it was taken off (the survey),” he said, adding that including space taken by building owners can skew occupancy rates and distort the local leasing market.
Mundell said the decline in vacancy was due to actual absorption, including the removal of some Class B office buildings from the market, as some of these are being converted into other uses. For example, a pair of longtime office addresses, the Commerce and the Peoples buildings, are both being renovated into downtown housing units.
“They were competing with B space. With the conversions, at least in part, to residential, that takes space right off the market,” said Mundell.
“We’re also seeing absorption in the government sector and we’re seeing some new tenants coming in from Detroit.”
Mundell hopes that more Motor City-based firms will establish an office here and create a trend for the market. He thought that type of activity could pick up, now that DeVos Place has opened for business. He felt meeting planners and related service firms would be most likely to lease office space in the market.
Mundell also thought that the convention center could help draw tenants to the central business district, similar to what happened in 1996 when Van Andel Arena opened.
“As the arena presented a rippling effect, which resulted in the conversion of industrial buildings into loft office, I think the convention center will have a rippling effect to fill some of the gaps in the vacancies for downtown,” he said.
Dan Carter, head of the BOMA survey committee, felt the market’s gain in absorption was good news for building owners.
“That kind of absorption in these economic times is encouraging. This still is a tenants’ market, but it is tightening up. Soon, landlords will have a more competitive stance and rental rates will begin to escalate,” said Carter, a partner at accounting firm Hungerford, Aldrin, Nichols & Carter.
Other findings from the 2004 survey were:
- The downtown occupancy rate rose to 85 percent from 83.7 percent.
- The suburban occupancy rate grew to 83.6 percent from 82.2 percent.
- The Plainfield office area had the highest occupancy rate at 91.4 percent.
- The 28th Street/I-96 office area had the lowest occupancy rate at 73.4 percent.
- Only four of the 14 office areas had occupancy rates above 90 percent. These were Breton/Burton, Wyoming, Cascade Road/I-96 and Plainfield.
BOMA was established here in 1968 and is one of 95 BOMA organizations across the U.S. and Canada. The Grand Rapids chapter is associated with BOMA International, the voice of the commercial real estate industry in Washington, D.C.
Copies of the 2004 report are available from BOMA.