According to the third quarter market reports from NAI Wisinski West Michigan, the industrial sector is pushing through COVID-19 territory thanks to Michigan’s strong manufacturing backbone, but the region may have yet to see the long-term effects of the pandemic on other real estate sectors.
It’s still too early to determine the damage COVID will have on the office industry. NAIWWM Office Specialist Mary Anne Wisinski-Rosely said the office market certainly has been affected, but many tenants still are bound by long-term leases.
“We are seeing some spaces go on the market for sublease, but people are still obligated to pay their rent,” she said. “We are seeing many tenants renewing with their existing landlords for shorter terms.”
Even though office spaces tend to be less full as more employees are working from home, it doesn’t mean the vacancy rate is increased, Wisinski-Rosely said. If tenants choose not to honor their leases, their only other option is to file for bankruptcy, but such instances are rare.
Vacancy rates rose slightly over Q2, according to the report, but the difference for Class A space seemed to change hardly at all. Class B and C vacancies rose from less than 5% in Q2 to less than 6% in Q3.
Vacancies overall were 5.3% in Q3, and the average rate across all sectors was $15.87 per square foot. The highest vacancy was in the southeast sector of West Michigan at 6.6% and $14.35 per square foot.
In downtown Grand Rapids, space is tight with a 4.7% vacancy rate and an average rent of $18.09 per square foot. Meanwhile the rate of new construction has remained constant since Q1 of 2020.
Some notable market activity took place in Q3. Interphase Interiors made plans to move its entire operations, design and sales staff from 3036 Eastern Ave. SE to a $5 million construction project at 415 Leonard St. NW, Grand Rapids. The building is scheduled to be completed in January or February of 2021. This move will create 12 to 15 new positions for the company. Interphase’s facility in Traverse City will remain operational.
Gateway Pediatric Therapy, a clinic that offers applied behavior analysis services, recently opened its first West Michigan clinic at 346 68th St. SW in Kentwood. It operates out of six private therapy rooms, as well as offering in-home services. The current space is 2,760 square feet, and Gateway has plans to expand further throughout Michigan in the coming year.
West Michigan Community Bank, based in Hudsonville, recently opened its seventh location at 4797 Cascade Road SE. The 8,000-square-foot location will be occupied by approximately 15 staff members, with the first floor comprised of everyday banking needs while the second floor serves as the commercial lending center.
The industrial market, meanwhile, has been very tight on space all through 2020. Kurt Kunst, partner and industrial broker with NAIWWM, said the market is seeing record high sales prices, and with the current high cost of construction, lease rates are higher than the market has ever experienced.
“Due to the continued high demand and low supply we feel prices will remain strong,” Kunst said. “We see some signs that construction costs are beginning to level out. Manufacturing is the bedrock of West Michigan and with the U.S. being placed on a competitive platform globally, West Michigan manufacturing continues to see good growth.”
Overall vacancies in the industrial sector dropped over Q2 even with a sharp increase in vacancy for flex space. Vacancies overall stood at 2.7% with an average rental rate of $4.16 per square foot.
The highest vacancy was in the northwest submarket, but still tight at 4.8% with an average rental rate of $3.93 per square foot.
Wyoming-based Grand Valley Wood Products and Surfaces of Michigan plan to relocate and consolidate operations. The two companies will move to 4030 Eastern Ave. SE after purchasing the 52,980-square-foot building. Construction and renovations were scheduled to begin at the end of October, with the plans to start operations at the new location by the end of 2020.
Hudsonville Ice Cream broke ground on a new cold storage hub that will add 156,466 square feet of 20-degree freezer space to its Holland headquarters. The project is planned to be completed in the spring of 2021. The hub is being built by Tippmann Construction and will include a refrigerated dock and nine dock doors.
West Michigan retail continues to struggle through the pandemic, as both vacancy and asking rates are up over Q2 and new construction has stalled.
The overall vacancy in Q3 was 7.8% with an average rent of $10.97 per square foot. The highest vacancy by submarket was in the northeast sector at $15.8% and $9.02 per square foot.
Some retail activity continued, and West Michigan remains attractive to outside restaurant chains. The Saucy Crab, a Louisiana and Cajun-style seafood chain based out of Tinley Park, Illinois, opened a new location on Aug. 17 at 5039 28th St. SE in Cascade Township. The new restaurant is the chain’s first Michigan location, and it is looking to expand further, opening more locations possibly in Ann Arbor, Lansing, and Traverse City.
KCM, a Korean and Japanese eatery, opened in the former Gaia Café at 209 Diamond Ave. SE in Grand Rapids.
Canopy by Hilton Hotel also opened the highly anticipated Studio Park location in downtown Grand Rapids in Q3. Located at 131 Ionia Ave. SW, the eight-story, 155-room upscale hotel offers many amenities including meeting and event spaces, several restaurants, complimentary Canopy bikes to tour the city, lockers, private showers for guests who arrive early and a retail wall with local products.