Is market reaching saturation point?
The West Michigan real estate industry is beginning to slow its pace.
Piping hot for a number of years, the area’s real estate market is still healthy but starting to cool off, according to the 2015 Market Review from the Commercial Alliance of Realtors of West Michigan.
The report, which was prepared by the Industrial Specialty Group of the Commercial Alliance of Realtors, covered the industrial, office and retail sectors of the community and reported business growth within those sectors.
West Michigan’s industrial sector is struggling to find inventory. According to the CARWM report, industrial transactions in the first half of 2015 decreased by about 15 percent compared to last year. Furthermore, the lack of inventory of industrial space left in West Michigan is becoming a problem for buyers, prompting many to consider the prospect of new construction, which in turn has led to an increase in vacant land sales.
“The lack of available quality inventory has hampered new sale and leasing activity as users now must consider alternate solutions to their immediate space needs,” said Steve Marcusse, principal at Colliers International West Michigan.
One of those solutions is to snap up vacant land.
“We have noticed a spike in vacant land sales, specifically industrial, which should lead to growth in new construction over the coming year,” said Ryan Lake, a commercial appraiser with Genzink Appraisal Co.
In the first half of 2015, the sales dollar volume was $30,596,900, compared to the first half of 2014 when it was $40,234,735, a decrease of nearly 24 percent.
Additionally, lease rates “have caught up to pre-recession numbers,” according to the report.
“The demand in the marketplace is strong, and it is anticipated that this pressure to build will continue to escalate,” said Stu Kingma, associate broker with NAI Wisinski of West Michigan.
“What will ultimately break the log jam are those buildings that become available based on users that have decided to build.”
West Michigan’s office sector also was a mixed bag.
According to the report, “The number of office space leases (closed from January to July 2015) decreased by 25 percent over the same period in 2014 for the West Michigan area.”
The number of office leases in the Central Business District increased by 10 percent, however, fueled by the completion of more building renovations.
The amount of office buildings sold was the same as 2014, the report stated, but downtown office market lease rates are going up. This is likely due to the recent renovations to many of the downtown market’s spaces.
The report also noted many businesses are considering moving their offices to the urban core in an effort to attract more millennial talent.
“The supply of office buildings available for sale has decreased, but the 2015 Market Review indicates there is still demand to purchase office properties. Downtown leasing remains the strongest part of the leasing market,” said Mary Anne Wisinski Rosely, partner and office specialist at NAI Wisinski of West Michigan.
West Michigan’s retail market also is feeling a space pinch.
In the first half of 2015, the number of retail sales transactions decreased by 14 percent compared to sales in the first half of 2014. Additionally, the number of lease transactions decreased by about 18 percent.
“The prime retail corridors (East Beltline, 28th Street SE and the Grandville/Rivertown area) have very few vacancies. As fewer choices become available in the primary markets, activity in the surrounding areas expands,” the report read.
“Retail specialists anticipate the re-development of historically active corridors, such as the de-malling of Centerpointe Mall, as well as the new development and expansion of corridors such as Knapp’s Crossing on the East Beltline.”
The report also indicated downtown retail has a number of new options “as residential supply continues to keep up with demand.” Downtown’s new mixed-use buildings usually offer some kind of retail space, which often is filled by restaurants, bars and other retailers.
“Transaction velocity has decreased due to a limited amount of quality options. The tenants who are currently exploring our market are seeking traffic and exposure over rental rate discount. This limits the amount of viable locations and has thus slowed down the rate of deal making, as tenants wait patiently for the right location,” said Earl Clements, principal at Colliers International West Michigan.
“New regional and national retailers have now taken notice of all the great economic stories of West Michigan and want to enter our market.”