Downtown office vacancies inching upward
Analysts believe market will rebound once significant renovations are completed.
The metro Grand Rapids skyline is changing as high profile projects like Warner Tower are being topped off. Additionally, these new projects are expected to create a vacuum in vacancy of premier office space once they come online.
Jones Lang LaSalle, a Chicago-based commercial real estate firm with offices in Grand Rapids and Detroit, recently released its yearly Skyline report, highlighting an overall vacancy rate of 19 percent among Class A office space in the Grand Rapids Central Business District.
JLL’s Skyline report is an annual highlight of the “trophy market” in 57 markets across the U.S. and Canada. The report defines the trophy market as core office buildings that consistently achieve rents in the top 10 percent of the Grand Rapids CBD and are superiorly managed. Owner-occupied properties are excluded from the analysis.
This is the second year the firm has conducted the analysis for Grand Rapids.
The direct average asking rent for prime office space in the core of Grand Rapids came in at $22.07 per square foot, and overall vacancy was 19 percent, compared to a recorded 18 percent in JLL’s 2017 report.
Previously, vacancy of prime office space in the CBD had been declining since 2011, when it peaked at an all-time high of nearly 30 percent, according to JLL and previous Business Journal coverage.
Rent growth also has begun to taper off. As reported by JLL, average rent growth of premier office space has risen only 2.7 percent over last year.
JLL Senior Research Analyst Harrison West said two major renovations are contributing to the higher vacancy rate observed this year. He said 200 Monroe Ave. NW and 50 Monroe Ave. NW are existing buildings being converted into Class A office space, which could further redefine the market.
The 200 Monroe structure originally was built in 1966 and will offer 91,455 square feet of potential office space once renovations are complete. According to a previous Business Journal report, Fifth Third Bank originally operated within the building before consolidating its space into 111 Lyon St. NW, leaving 200 Monroe completely vacant.
Also available is 87,500 square feet in CWD’s redevelopment of the 50 Monroe building. Currently, only 26.5 percent of the building’s office portion is leased. The nonoffice portion of the building will be an AC Hotel by Marriott, operated by Amway Hotel Corp. The building was originally constructed in 1860.
While new projects and renovations are pushing CBD vacancies back toward the 20 percent mark, it may not be too long before the new space is absorbed into the market, West said.
“A lot of tenants want to be in an urban environment to attract talent. That’s across the board,” he said. “Once renovations are complete, I think it won’t take too long to lease.”
Comparatively, Detroit’s downtown core is slightly more constrained than Grand Rapids, with a higher rate of subleases, or a lease by tenants to subtenants, West said.
“In Detroit, tenants are getting priced out,” West said. “I don’t think we’re there yet for Grand Rapids. Rent growth has kind of slowed. It’ll be interesting to see what happens when that vacuum is created and rental space gets absorbed back.”
CBRE Martin also observed a higher-than-usual vacancy for Class A office space in the downtown CBD in its 2018 second quarter snapshot. The report noted a 17.4 percent vacancy rate and average asking prices of $23 to $29 per square foot in this submarket.
Listed below are buildings in JLL’s Skyline report for downtown Grand Rapids, as well as the total office space in each building and the percentage of space currently under lease.
Bridgewater Place — 382,980 square feet, 80.3 percent leased
Calder Plaza — 157,406 square feet, 35.9 percent leased
200 Monroe — 91,455 square feet, 0 percent leased
Fifth Third Center — 218,342 square feet, 100 percent leased
99 Monroe — 186,957 square feet, 94.9 percent leased
171 Monroe — 91,455 square feet, 96.7 percent leased
50 Monroe — 87,500 square feet, 26.5 percent leased
Arena Place — 143,777 square feet, 100 percent leased
50 Louis Street — 65,659 square feet, 91.2 percent leased
77 Monroe Center — 93,597 square feet, 75.8 percent leased
40 Pearl — 116,576 square feet, 92.4 percent leased
Riverfront Plaza — 168,577 square feet, 98.5 percent leased
Chase Building — 122,426 square feet, 87.9 percent leased
300 Ottawa — 88,282 square feet, 75.2 percent leased
McKay Tower — 132,943 square feet, 98.4 percent leased
Warner Building — 118,000 square feet, 93.3 percent leased