Office leasing activity slows in 1Q
Lack of parking forcing tenants to leave downtown.
West Michigan’s office market stayed strong in the first quarter of 2018, although rent and vacancy rates are beginning to level off, as Class A tenants either consolidate or leave downtown due to lack of parking.
According to JLL’s quarterly office report, leasing activity was a little slower than in previous quarters, with no major deals taking place. The overall vacancy rate is 11.1 percent, just down from 12.9 percent at the end of 2017, and the average asking rent is $17.76 per square foot.
Jeff Karger, JLL’s senior vice president of brokerage in Grand Rapids, said while the market continues its positive trend from last year, activity has slowed in the first quarter. He also regarded the downtown parking constraints as a factor in the slowdown.
“If anything, you’ll see a slight tick down, because frankly, parking is an issue, specifically parking south of Fulton,” Karger said. “Even leasing in the (downtown) core in general has been dramatically affected.”
Karger added the lack of parking has led to an increased availability of sublease space, or space where the tenant has vacated but is still paying rent.
According to the JLL report, downtown vacancy is 11.3 percent, with an average rent of $20.44 per square foot. The first quarter also saw a total of 174,000 square feet of office space under construction just in the downtown corridor.
Karger said the situation might change when the Studio Park development is complete. The project promises to deliver 40,000 square feet of Class A office space, as well as almost 950 new parking spaces.
Mary Anne Wisinski-Rosely, principal and office adviser at NAI Wisinski West Michigan, said she also thinks the lack of parking is a notable factor in companies choosing to leave downtown.
“I do know a few tenants we were involved with who have moved out of downtown because of parking,” she said. “I also know some tenants who are staying downtown because that’s where they want to be located.”
The Warner Tower at 150 Ottawa Ave. NW in downtown Grand Rapids is mostly leased, which will leave Warner Norcross’s current home at 111 Lyon St. NW open as new inventory. Wisinski-Rosely said the building’s on-site parking would make it attractive to newcomers.
NAIWWM’s quarterly report highlighted Spectrum Health and Holland Hospital’s joint effort to open Health Pointe, an integrated health care campus at 15100 Whittaker Way in Grand Haven. The 100,000-square-foot complex offers primary and specialty physician care, urgent care, laboratory and radiology, outpatient procedures and surgery.
Adventure Credit Union also completed a new $1.2-million branch at 5165 Wilson Ave. SW in Wyoming. The company had the new, 2,953-square-foot branch built to consolidate two outdated locations into one standalone building.
NAIWWM observed an overall vacancy of 5.6 percent with an average asking rent of $15.68. The highest vacancy by region was in the Southeast market, with an overall vacancy of 7.5 percent and average rent of $14.10 per square foot.
Wisinski-Rosely said she expects the market to remain strong for a while, although growth has weakened compared to previous years.
“The market is still good, it just was so good that now it’s starting to slow down a little bit,” she said.
Grand Rapids’ West Side also is offering an attractive alternative to downtown, according to JLL’s market highlights.
“We are not seeing much speculative space,” Karger said. “We are seeing a little bit on the West Side with Rockford (Construction’s) development.”
JLL noted the construction of a $20-million, 40,000-square-foot Consumers Energy West Michigan headquarters at 501 Alabama St. NW in the Circuit West area of Grand Rapids. The project is a collaboration between Consumers and Rockford Construction.
Comparatively, Colliers International West Michigan recorded an overall market vacancy of 14.61 percent and an average rent of $17.96 per square foot. Downtown vacancy was 10.4 percent with an average rent of $23.39 per square foot.
Colliers also highlighted strong office activity for Kent County in the first quarter. The report said 73 on-market leases and 13 on-market sales were completed, a 19.4 percent increase from the first quarter of 2017.
The southwest suburban market had the most absorbed space during the quarter. Colliers attributed it partly to Advantage Sales and Marketing receiving a certificate of occupancy at the vacant Klingman’s building at 1001 28th St. SW after moving from its downtown Grand Rapids location.
Colliers recorded seven office projects, totaling 283,482 square feet under construction for the first quarter.