Signals point to surge in apartment construction
Grand Rapids has 19 projects under construction, 15 proposed or approved projects after slow start in 2017.
(As seen on WZZM TV 13) Despite a relative lull in multifamily residential housing construction at the beginning of 2017, indications point to another surge.
Currently in the city of Grand Rapids, there are 19 projects under construction and more than 2,000 apartment units, most of which fall into the market-rate category. Meanwhile, there are 15 proposed or approved projects in the city with nearly 1,500 units, many of which qualify as affordable housing developments.
Several projects seemed to stall earlier this year, and at least one project, the Warner Building, switched from a residential component to hotel prior to its groundbreaking in June. A major signal residential might still have forward momentum is the groundbreaking of 601 Bond by the New York-based development group Time Equities Inc. The 16-story, 140-unit mixed-use building in the North Monroe neighborhood had gone dark for months before abruptly beginning site work in July.
The increase in construction is based on multiple factors, said Scott Nurski, NAI of West Michigan multifamily investment advisor.
Starting with more than a decade of little multifamily construction combined with mild population growth and employment growth, as well as more expected household growth as young adults move out of parental households and roommate situations, all contribute to the pent-up demand, Nurski said.
“These factors have led to a significant increase in multifamily construction across West Michigan,” he said.
With the spurt of growth, such as Arena Place and multiple 616 Development and CWD Real Estate Development projects, occupancy rates still are strong, Nurski said.
“We expect the added unit supply will help alleviate the relative shortage of rental availability but will start to impact occupancy levels a bit in the next 12 to 24 months,” he said, adding only a few submarkets will feel a market saturation.
Downtown occupancy rates peaked last year at 96.5 percent, according to Jeff Hainer, senior research analyst at Colliers International West Michigan. Hainer said the rate dropped to 94 percent, but because of increase in new supply not a decrease in demand.
“Because of this, competition for tenants is obviously increasing,” he said. “Amenities such as a dog park at Brix at Midtown and 7 Monks Brewpub at the 616 property on Michigan Street are examples of ways properties are differentiating themselves.”
Studio and one-bedroom apartments continue to attract the highest demand, according to an upcoming market report from Colliers West Michigan. The average rent for a studio in downtown Grand Rapids is $1,002 and $1,351 for a one-bedroom, according to the upcoming Colliers report.
Rental rates surging to more than $2 per square foot in new construction buildings, such as 601 Bond, help justify the construction costs in the tight labor market, according to Hainer.
Nurski said the multifamily rental demands also are brought on by a multitude of homebuying challenges, led by less than a month’s supply of homes for sale and tepid wage growth among young professionals.
He also noted young professionals are less likely to buy and are choosing to rent longer.
“Renting offers relocation flexibility, reduced living cost burden vs. owning,” he said. “There is wide demand for apartments across all age groups and income levels.”
A report from Triad in 2015 found 78 percent of downtown renters to be millennials, born between 1977 and 1996, and Grand Rapids has a higher percentage of people ages 18 to 39 than the state and national average.
Colliers is tracking the length of stay for apartment units, attempting to find out whether demand will be sufficient when turnover occurs.
“Developers need to be looking into the future a year and a half at a time to make sure units don’t remain vacant,” Hainer said.
Among the most important factors for the future of renting in downtown Grand Rapids is parking. According to Colliers, renters still desire close parking to their homes and price is not an issue, but availability is a growing concern.
“One property we manage downtown used to have free covered parking, new renters are now being charged for those spots if they want them,” Hainer said. “Not one single renter has turned down that opportunity.”
Significant Multifamily Projects
Market Avenue Apartments, Maplegrove Property/Rockford Development, 260 units
Diamond Place, Third Coast Development, 165 units
601 Bond, Time Equities Inc., 140 units
Meijer Multifamily Development, Rockford Development/ICCF, 180 Units
Hinman Tower, The Hinman Company, 255 Units
Studio Park, Jackson Entertainment LLC, 187 units (Phase 1)
Heritage Place, Orion Real Estate Solutions, 86 units
616 Lofts on Grove, 616 Development, 100 units
Source: NAI Wisinski of West Michigan West Michigan Multifamily Construction Pipeline Report