Report credits Grand Rapids with a ‘great turnaround’
Triad Real Estate Partners study shows industry diversity is key.
(As seen on WZZM TV 13) The Grand Rapids real estate market has had a better turnaround than most second-tier Rust Belt communities, according to a recent report.
Chicago-based Triad Real Estate Partners released a Grand Rapids Research Report this month showing Grand Rapids has a 98 percent occupancy rate among the 17,000 units in 50 apartment complexes surveyed.
The study was conducted in December 2015, in part as an effort for Triad to become more involved in the Grand Rapids market, as more national investors are coming to the company with an interest in West Michigan.
Dane Olmstead, Triad’s director of research and analytics, grew up in Kalamazoo and said that, during his high school years in the late 1990s, Grand Rapids didn’t seem to have much going on. He said the strategies the city has employed are similar to those across the Midwest but it seems to have cued in to those strategies better than most.
“Among secondary markets, Grand Rapids has pulled off one of the great turnarounds,” Olmstead said. “In the past four or five years, the hard work from a decade or more ago is coming to fruition, from the riverfront development to re-concentrating on the downtown core.
“It’s better than a whole lot of other places.”
Triad specializes in multi-family, student and affordable housing in secondary and tertiary markets across the Midwest; it conducts studies to get a better grasp of these markets, as information from real estate information firms isn’t as complete for secondary and tertiary markets as it is for primary markets such as Chicago and New York.
At 98 percent, Grand Rapids has an occupancy that is stronger than most of the rest of the nation.
Olmstead said Peoria is a secondary market comparable to Grand Rapids and currently has a 91 percent occupancy. Peoria’s relative struggle is based largely on the downsizing of Caterpillar, the city’s major employer.
Grand Rapids’ diversification in the industries to which it is home is one of the major reasons the city continues to be strong, he said.
“Grand Rapids is bigger and it’s not completely tied to one industry,” he said. “There are a lot of not quite as big cities that are one-horse towns.”
Olmstead said any real estate market with an above 90 percent occupancy is healthy, and a unique example Triad found in Grand Rapids was that only one complex surveyed was under 90 percent occupied. “They were in the middle of a gut rehab or similar project,” he said.
“If a property isn’t above 85 percent, that’ll go into foreclosure, and that’s bad for the entire market.”
Grand Rapids should continue to foster a strong market for years to come, Olmstead said, citing three key statistics: occupancy, average rent increase and total employment.
The survey found total employment increased 3.84 percent year-over-year in Grand Rapids in 2015, and average rents rose more than 5 percent in the previous 12 months for the second consecutive year.
The report also cited a jump of 27 positions in the Milken Institute Best-Performing Cities rankings, to No. 21, making Grand Rapids one of two Midwest metro areas in the top 25, ranked behind No. 20 Madison, Wisconsin.
The Milken ratings provide a measure of economic strength based on job, wage and technology metrics.
Triad also mentioned the Switch SuperNAP Data Center and the Michigan State University College of Human Medicine Grand Rapids Research Center as future job creators. The Medical Mile is one of the premiere assets of the downtown real estate market, Olmstead added.
As for the climbing downtown “market rate” rents, Olmstead said he believes they’ll level off and then begin to shrink as development of the downtown area spreads out.
“I don’t see this market softening up in the near future,” he said. “The rents won’t keep growing at the same rate. The market always sorts itself. As the developments get away from the downtown center, those will fill up, costing less money, and it might put pressure on others to bring down their rents.”
Key findings of the Grand Rapids study:
- Grand Rapids has a 98 percent apartment occupancy, above the 95 percent national average.
- Studio apartment average rent is $580.
- One-bedroom average rent is $728.
- Two-bedroom average rent is $857.
- Three-bedroom average rent is $1,216.
- Unemployment dropped to 3.1 percent, one of the lowest rates in the country.
- Labor force is up 2.5 percent in the past year.
- Employment is up 3.84 percent in the past year.