4Q report indicates stable market
Outside investors boost industrial real estate market, new construction to add office space.
The fourth-quarter reports recently released by JLL highlight a steady increase in rental prices and decline in vacancy for both the industrial and office sectors. The trends are similar to what the commercial real estate agency observed in the third quarter of 2017, leading to the prediction these trends will remain stable going into 2018.
West Michigan’s industrial sector saw steady improvement at the close of 2017. The average asking rent per square foot rose four cents to $3.28 and vacancy dropped to 4.5 percent.
Over 3.2 million square feet of industrial space was absorbed in 2017, leading to the drop in vacancy. The market absorbed 1,601,383 square feet of warehousing space and 1,617,395 square feet of manufacturing space.
Notable leases of the fourth quarter include Skytech’s 28,000-square-foot lease at Roger B Chaffee Drive and Fabory, a fastener manufacturer, leasing 155,000 square feet at 3366 Kraft Ave. SE.
Non-local dollars continue to enter the market through capital markets transactions and construction, as California-based investment firm 7K LLC purchased a $34-million portfolio of properties in Holland and Kentwood developed by Robert Grooters Development Co.
“Probably the biggest significant investment is that $34 million in Grooters properties,” said Bob Horn, senior vice president and associate director of JLL.
Jiecang Linear Motion Technology, based in China, also is opening a $4.9-million furniture manufacturing facility in Cedar Springs.
Mergers and acquisitions are picking up speed in the region. Significant deals include Premier Freight’s purchase of American Storage and Logistics’ warehousing division and Steelcase’s acquisition of AMQ for $37 million.
Expansions also are prominent throughout West Michigan, such as GNS America’s $2.8-million investment in its Holland facility and Herbruck’s Poultry pouring more than $16 million into its plant in Saranac.
Horn predicted speculative building also might pick up in 2018 as the market stabilizes.
“Visser Brothers has one on 6610 Patterson. That’s a spec build — 185,000 square feet,” Horn said. “They are also cleaning up a property on Turner, a former auto parts junkyard. They got some incentives from the city to clean that up and build come spring.”
In the office market, 2017 closed out with an average asking rent of $17.84 per square foot and an overall vacancy of 12.9 percent.
“Things are starting to plateau. Rents and vacancy have kind of stabilized,” said Jeff Karger, JLL senior vice president of brokerage. “We haven’t seen significant change from Q3 to Q4.”
The average rent for Class A office space was $21.50 per square foot compared to $16.53 for Class B space. Class A’s total vacancy was 15.2 percent, while Class B’s was 12.2 percent.
“What you’re seeing is a consolidation of Fifth Third Bank leaving 200 Monroe,” Karger said. “I see Class A vacancy creeping up a little bit downtown.”
The Business Journal previously reported Fifth Third Bank vacated 200 Monroe Ave. NW and moved to 111 Lyon St. NW.
Leasing activity was steady in the fourth quarter, with a few noteworthy deals. Service Express Inc. signed a 40,000-square-foot lease at Bridge Pointe Office Park, and Nolan Transportation leased 9,000 square feet at 3040 Charlevoix Drive SE. Both deals closed in the southeast Grand Rapids submarket.
New construction has begun and is expected to add office inventory. Residential brokerage firms ReMax and Berkshire Hathaway announced plans to build offices in the market. The suburbs and East Paris corridor also have seen a high demand for new construction to support the medical sector.
The Warner Building still is under construction, which will bring 118,000 square feet to the downtown office market, and the development on Seward Avenue and Bridge Street, which includes Meijer’s West Side Market, will add 56,000 square feet of office space.
“The West Side has been pretty active,” Karger said. “That has been a very strong market for us.”
A new co-working space, Blueprint Collaborative, also opened on the West Side, at 859 W. Fulton St.
JLL predicted the 201 Market development has the potential to add more Class A space to downtown Grand Rapids, while the office component of the Studio C! development south of Van Andel Arena is looking for a tenant.
Karger expects trends to remain steady in 2018. As vacancy levels off, rent growth may slow. The West Side also will likely see an increase in leasing and sales activity because of new developments.