Things are looking up for West Michigan real estate in 2021. The latest market reports from NAI Wisinski West Michigan indicated the region overall is weathering the COVID-19 storm.
The reports, which covered market activity for the fourth quarter of 2020, found the industrial sector held up extremely well through the pandemic. The fourth quarter overall vacancy rate ended the year at 2.7%, compared to a year-end vacancy of 2.6% in 2019.
“Statistically, this is inconsequential,” said NAIWWM Industrial Specialist Stu Kingma. “While we did see some increases in vacancy during the first, second, and third quarters of 2020 that reached as high as 3.6%, the continued resiliency of the industrial segment of the commercial real estate world left us, at year-end, where we were the year before, which is excellent news.”
The continued market strength comes from many sectors of the industrial market, Kingma said, however, regional office furniture manufacturers remain impacted by the pandemic and its work-from-home circumstance.
“While there are divergent perspectives on what this means for office space users long-term, we do anticipate that once the pandemic’s grip has loosened, the office furniture segment will rebound and may require additional warehousing space,” he said.
Rental rates followed a similar track to the vacancy rate. At the end of 2019, the aggregate rental rate was $4.12 per square foot, and 2020 ended at $4.25. Kingma said this points to a tight market and continued robust activity with tenants.
“We anticipate this strength in rental rates to continue into 2021 given the relative lack of quality available space,” he said.
Many transactions also are happening with “off-market properties” that either are not being advertised by way of signs, or simply traded based on relationships and needs that are understood by those keyed into the brokerage community.
Pharmaceutical manufacturer Perrigo is investing $13 million into building a 357,000-square-foot distribution center at 796 Interchange Drive in Holland. The new facility will be the third expansion for Perrigo in the Holland area within the past two years.
Construction began in August of 2020 with plans to wrap up and be ready for occupancy this month.
Hudsonville Ice Cream currently is working on a $35 million expansion. Hudsonville Ice Cream is building a 156,466-square-foot cold storage distribution center and is increasing its manufacturing capacity at 345 E. 48th St. in Holland. This is the fourth expansion for Hudsonville Ice Cream in the past three years and will create 45 new jobs — increasing its workforce by 47%.
The health of retail unsurprisingly remains uncertain, but there were some unlikely positives. Retail holiday sales grew by 3% in Q4, as opposed to the projected 2.4%, signaling stronger than expected consumer resiliency. E-commerce sales also increased 49% year-over-year.
Shoppers also began holiday shopping in October, a much earlier start than previous years. However, overall retail sales decreased in December as added measures were imposed to slow the spread of COVID-19, with decreased spending in restaurants and malls.
Fast food — and drive-thru locations, especially — unsurprisingly performed well in 2020. Home and sporting goods performed well through the balance of 2020. Retailers in grocery, home improvement, sporting goods, recreational vehicles, pharmacy and discount retailers exceeded 2020 expectations.
“Segments of the retail market will continue to be challenged in 2021 by the uncertainty of the government-mandated restrictions,” said NAIWWM Retail Specialist Todd Leinberger. “Those challenges, especially for sit-down restaurants, have been well documented. Further, Junior Box and Big Box leasing has been sluggish in 2020, and the growth plans for many larger format retailers remains uncertain for 2021. Also, there is uncertainty as to the impact that stimulus payments to individuals and small businesses (PPP loans) will have on retail spending and keeping struggling businesses afloat.”
Retail vacancy was 7.7% in Q4, compared to 7.8% in Q3, and the average rental rate was $10.82 per square foot, a step down from $10.97 per square foot in Q3.
With the recent closure of Wheelhouse at 67 Ottawa Ave. SW in Grand Rapids, Meritage Hospitality Group plans to convert the space to a Stan Diego Baja Taco Kitchen. There is currently no set date for the space’s reopening, but renovations to the restaurant are underway. This will be Meritage’s second Stan Diego location, the first being at 355 Wilson Ave. NW in Standale.
The office market weathered the COVID-19 storm surprisingly well, according to NAIWWM reports. Vacancy rates remained low (5.3% in Q4) and lease rates remained strong ($15.64 per square foot.) The vacancy rate at the end of Q4 remained unchanged from the previous quarter, and there also was very little movement in average lease rates over the previous quarter.
Most leasing activity in Q4 took place in the suburbs. Some of this activity was attributed to smaller companies relocating from their downtown office spaces to reduce lease expenses and eliminate parking costs.
Comparatively, leasing activity in the downtown core remained slow in Q4 and has remained slow since the COVID-19 outbreak began back in March 2020. One Q4 highlight in the downtown office leasing arena was Lockton Insurance signing a lease for 6,000 square feet at 38 Commerce Ave. SW.
“There continues to be strong demand from owner-occupants to purchase good quality office buildings that are vacant and/or partially leased,” said Jason Makowski, partner and office specialist at NAIWWM. “Sale prices have remained strong in these cases.”
Some notable owner-occupant purchases in Q4 were the sale of a 7,000-square-foot office building located at 3368 E. Beltline Ct. NE for $110.71 per square foot, the sale of a 6,854-square-foot office building at 580 Cascade West Pkwy. SE for $126.93 per square foot and the sale of a 5,147-square-foot office building located at 1403 60th St. SE for $164.17 per square foot.