Commercial real estate market continues to flourish
Colliers report says West Michigan retail sector remains driven by food and restaurants.
The commercial real estate market still is thriving.
Colliers International recently released its West Michigan second-quarter report. It revealed all sectors of the commercial market are prosperous.
“While national headlines have mentioned a potential slowdown for the second half of 2019, Michigan’s economy remains strong and continues to build on its success,” said Chris Prins, Colliers International West Michigan senior associate. “Growth is happening across the region, and local businesses are expanding across all sectors. Although there are historically low vacancy rates, we continue to look for unique solutions to address the lack of space across the retail, industrial and office sectors.”
According to Colliers International, the West Michigan retail sector continues to be driven by food and restaurants. The growth recently was evident when it was announced earlier this year that a second Cheesecake Factory in the state will be opening at Woodland Mall in Kentwood this October.
The report says the vacancy rates will remain steady at 3.05% and main retail corridors will continue to have limited available space. There are no vacant big-box locations available, and rental rates are leveling off at $12.68 per square foot.
Chris Veneklasen, president of Grand Rapids-based construction company a.j. Veneklasen Inc., said his firm has been doing a lot of work for grocery stores with a smaller footprint, adding that he has noticed a growing trend of grocery stores becoming smaller. The stores, excluding Meijer and Walmart, are getting smaller with fewer items. He said he believes it is, in part, because consumer habits are changing.
“I think some consumers want to get in and out of grocery stores more quickly,” he said. “They want to pick up a few things and leave.”
The Colliers International report noted there is a demand for high-quality office space. As a result, the rental rates will increase for the second half of 2019. The average lease rate, per the report, is $21.86 per square foot for the downtown Grand Rapids area and $15.94 per square foot for suburban office spaces.
With retail and office space in demand, it has warranted the need for developers to build mixed-use buildings. That is what Gary Granger, CEO of Granger Group, is doing.
The developer is expanding Metro Health Village, a $2 billion project in Wyoming. The village is the site of Metro Health-University of Michigan Hospital.
The Business Journal previously reported the expansion of the village will include the development of the Village Life Marketplace, a mixed-use retail and office space, a single-story retail space and an additional housing complex for Granger Group’s assisted living community, First & Main.
“We are going to have a lot more people on the village doing a lot more things,” Granger said. “We have a farmers market in the village here now, and we think that is going to expand. We will probably have classic car shows, concerts on Fridays, those kinds of things going on and then we will have more municipal elements to this project like a library or an extension of city hall. There are other things that will go on and we will continue to expand with the range and the depth of what this community has to offer.”
The Colliers report showed the industrial sector is the most desired among all the sectors with vacancy rates at just 1.62%, and buyers are generating the most activity.
“(The distribution market) is where we have seen a lot of activities,” Veneklasen said. “Of course, all these things that you are ordering have to show up at your door somehow. So, the distribution market is very strong. Regionally, I have seen a lot of cross-dock shipping type of operations and large warehouse distribution centers.”
As the retail, office and industrial sectors continue to thrive, the tenants of those buildings also are looking to grow. Michael Garrett, president of Pinnacle Construction Group, said more people are leasing space.
“Businesses want to invest their capital in their business, not their facilities,” he said. “They look at leasing as a way to preserve their capital to grow. They are buying new machinery, and they are hiring new employees. They are using their capital to do that versus on real estate. They want to have the ability to expand; they want to go into a facility where they can expand as their business expands. So, a multitenant building allows for future expansion.”
Garrett said the market has been growing for the last seven or eight years, but it has really accelerated in the past three years.
“I thought, this year, we would see a slowdown, but we just haven’t seen it at all,” he said. “It is as busy as I have ever seen it in my 23 years in the commercial market. Our real estate market (goes through) cycles. It gets up and it gets down, and it is about a 10-year cycle. We have been due for a couple of years for a slowdown and it just hasn’t occurred.”
Granger said he credits the sustained growth to the private sector.
“I think when we enacted tax cuts, it was good for the economy,” he said. “I think what we’ve done, in putting more money in the hands of the private sector, has produced positive results. Anytime you put more money in the private sector, it is going to be invested much, much better than if you enact public policies and try to get the government to solve the problem. It just goes slower and it is not invested as well. I think the more money we are able to put into the private sector, it has worked out better.”
However, Granger said the immigration and trade issues that have affected so many industries need to be resolved soon.
Likewise, Garrett acknowledged the tariff war between the U.S. and China could cause an unexpected recession.