Construction and Real Estate

Parking concerns hamper leasing

Industry execs agree lack of parking won’t threaten downtown office market, however.

July 27, 2018
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Parking continues to be a major obstacle for downtown businesses, and local real estate firms are taking note.

NAI Wisinski of West Michigan’s office snapshot for the second quarter of 2018 said the overall office market continues to be strong, but leasing has slowed, particularly in the downtown area where costs of occupancy are higher and parking is limited.

“It’s not any more different than it was in the first quarter,” said Mary Anne Wisinski-Rosely, NAIWWM partner/office adviser.

Wisinski said, although new construction downtown presents opportunities for office tenants to expand or relocate, it might do little to ease the pressure on parking.

In the instance of the Warner Tower on 150 Ottawa Ave. NW, the developer, Orion Real Estate Solutions, has only factored in enough parking to meet the demands for its two key tenants, Warner Norcross & Judd and Chemical Bank.

“I think it’s only going to help their existing buildings,” Wisinski said. “It’s more toward their tenants. If their tenants don’t need all the spots, it might be open to the general public.”

Wisinski said she does not believe parking constraints are going to lead to an exodus of businesses from downtown, but leasing activity likely will stagnate until a parking solution presents itself.

Downtown vacancy overall is up slightly from the first quarter, closing out at 5.6 percent from 5.4 percent. But suburban area vacancy has risen slightly, as well. The Southeast submarket saw the highest rise in vacancy, from 7.5 percent to 8.4 percent, as new construction comes online.

Jones Lang LaSalle also attributed low vacancies to the downtown parking crunch, but Harrison West, JLL senior research analyst, said it likely won’t stop businesses that are aggressive about establishing themselves downtown.

“The trend we’re seeing nationwide is businesses moving to downtown urban environments, where you can attract young talent from universities,” he said.

West said what is happening in Grand Rapids is indicative of other downtown areas like in Detroit. Even though it’s a larger metro, it still struggles with parking congestion as more businesses and workers are drawn to the core.

Who stays and who leaves depends mostly on the type of business, West said. Higher-profile tenants, like law firms, tech companies and health care providers, aren’t going to be scared out of the urban core by the parking or the rental rates if they want the prestige of being downtown.

“Some businesses might stay, while others may be contemplating, ‘Maybe it’s not right for us,’” he said. “Tenants are weighing the benefits of being downtown and being in the suburbs where they have lower rates and parking right out front.”

West also said it’s unlikely parking constraints are going to threaten the downtown market. Even if activity is slowing down, it’s still on an upward trend, and vacancies have been steadily declining over the past few years.

According to JLL’s numbers, overall vacancy in greater Grand Rapids is down to 11.1 percent, compared to 12.9 percent in 2017 and 14.8 percent in 2016.

“I don’t think it would threaten the downtown market, what it might be doing is pendulum swinging to the suburbs for a short amount of time until parking solutions come,” West said.

In terms of new parking inventory under construction, he also said he didn’t see it as a long-term solution, considering more private developers are only building to satisfy the parking needs of their tenants.

Previously, the Business Journal reported on Downtown Grand Rapids Inc.’s numbers, saying about 5,000 new parking spaces downtown are recently completed, under construction or in the development pipeline. West presumed at least some, if not all, would ease congestion once more come online.

“Hopefully, those 5,000 spaces ease it up,” West said. “There’s certainly a demand for it, and some developers have to see that and are going to cash in.”

Additionally, Colliers International of West Michigan said it has seen stagnation in downtown office leasing. Jason Webb, office adviser for Colliers International WM, said both the expense of parking and the lack of inventory have a “chilling effect” on the market.

If employers are paying for employee parking at a typical ratio of four employees per 1,000 square feet, that can add an additional 30 percent to their rent expense.” he said.

Webb added the problem also is exacerbated by building owners who preemptively buy vacant downtown lots for prospective tenants and further drive up demand.

Webb suggested a possible solution would be for high-profile tenants to move their employee parking. He said if an entity like Spectrum Health, or even the city of Grand Rapids, which both take a large number of downtown parking spots, were to move their parking to any one of the Dash Lots, it would ease some pressure, but it’s not likely to happen.

“If you’re already downtown, you have zero incentive to move,” he said.

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