Downtown residential projects add choice to market
High construction costs have kept rents high, but newer inventory is not replacing older inventory.
The downtown residential market is changing.
Numerous multifamily projects have been completed and many more are under construction. Along with the growth of new residential buildings, new offices and commercial businesses have made downtown Grand Rapids home.
“The Grand Rapids skyline has seen many changes over the past several years with many more building projects under construction,” said Drew Nelson, broker for Bradley Company. “New office buildings, the first West Michigan urban Meijer location (Bridge Street Market) and new hotels dot the skyline. Rounding out the mix of new construction in downtown Grand Rapids and the West Side are multiple multifamily projects.”
According to Bradley Company’s State of the Market report, there were 1,850 new units added in 2018 and an additional 780 new units are expected to come online in 2019.
Some of the apartment projects that were recently completed were Heritage Place, the Brix at Midtown, 234 Market Apartments, the Hendrik and Midtown CityZen. There are some projects that still are under construction and those include Studio Park and 449 Bridge.
“The current occupancy rate of most downtown multifamily buildings run an average of 95%,” Nelson said. “The newest downtown project to be completed, 601 Bond, an upscale multifamily project that includes a rooftop fitness center, rooftop deck, an on-site coffee shop and even a dog wash station, anticipates they will achieve full occupancy by the end of first quarter 2020.”
Although there is an abundance of multifamily projects being built, the construction of new buildings is expensive. As a result, Scott Nurski, senior multifamily investment specialist for NAI Global Great Lakes Region and NAI Wisinski of West Michigan, said rents tend to be much higher than those charged for suburban apartments, but there are affordable units available.
“Almost none of the new apartments in the downtown area have replaced existing housing,” he said. “This means that the new unit inventory is adding more choice to the marketplace, rather than taking away lower-rent housing to be replaced with high-rent housing.”
According to Esri, a mapping and location analytics platform, the median household income within the downtown area is expected to increase.
In 2018, the median household income for those living within a 1-mile radius of downtown was $30,243. The median income for the population living within a 3-mile radius of downtown was $38,660 and those living within a 5-mile radius of downtown earned $45,681 annually.
In 2023, Esri predicts the working population within a 1-mile radius of downtown will earn $35,820. Those living within a 3-mile radius will earn $43,935 and those living within a 5-mile radius are expected to earn $51,996 annually.
According to Nurski, the target rent for CityZen is 80% of the area median income. The Hendrik target rent is 60% or less of the area median income and the 449 Bridge location target rent is within 60% or less of the area median income.
Although some rental prices are higher than the suburban areas, Nurski said they’ve seen rent prices stabilize.
“We have seen rents in the downtown area level off due to the number of new units coming online since new properties are competing for tenants,” he said. “The rest of the Grand Rapids area apartment market really has not been affected by the new downtown development. If anything, properties outside of the CBD offer a more budget-friendly alternative for renters. We expect downtown rents to rebound once all of the new projects are absorbed, but we may see flat rents for a year or two until the downtown properties all are leased up.”
Rent prices may take a while to increase, however. Nelson said he is currently working with several multiple multifamily developers who either want to enter the downtown Grand Rapids market or expand their current footprint.
“Finding buildable sites, combined with the continuing increase in construction costs are making it no easy hurdle to overcome,” he said. “Despite those challenges, (I am) confident Grand Rapids will continue to see new multifamily projects take shape to fill the need. Where there’s a will, there’s a way.”