West Michigan is on a path of continued growth in 2020 and vacancy rates remain at historic lows across the industrial, office and retail markets, according to Colliers International West Michigan, which presented its 20th annual West Michigan Economic and Commercial Real Estate Forecast recently at DeVos Place.
“West Michigan has changed a lot since our first forecast event in 2000, and the region’s growth is possible because of the strong public-private partnerships in our community,” said Duke Suwyn, CEO of Colliers International West Michigan. “From downtown Grand Rapids to Wyoming to Hudsonville to the lakeshore, West Michigan has many opportunities to continue growing in the future.”
As manufacturing has grown and expanded, industrial space has become limited across the region, showing the strength and demand in the market with industrial vacancy rates at 2.39%. The limited available space has forced companies to be efficient and productive in the space they have, and this has driven automation.
According to Colliers’ 2020 forecast, the U.S. labor market has fully recovered since the 2008-09 recession. The national unemployment rate fell to 3.9% nationwide, and the Grand Rapids/Wyoming unemployment rate was even lower at 2.5%.
Although Michigan faced a jobs decrease in October, which Colliers attributed to the 18,000 General Motors employees and UAW members launching a strike against the automotive manufacturer, most of those jobs were recovered by November. Wages are slowly increasing but aren’t keeping pace with inflation.
Slow and steady growth in West Michigan is expected to continue in 2020, although the U.S. economy may dip in the coming years. The Colliers report anticipated economic growth would drop from 2.3% in 2019 to 1.7% in 2020 or 2021.
West Michigan continues to have a thriving manufacturing environment. As the industry has grown, space continues to be tight across the region. Colliers’ most recent numbers put vacancy at 2.39%.
Belt conveyor manufacturer Flexco last year announced plans to expand into a new 288,000-square-foot facility at a 36-acre campus in Walker. There also were major industrial building sales at 1040 40th St. SE and BFG Supply Company at 4660 East Paris Ave. SE, according to Colliers.
West Michigan’s office market continues to show a strong demand with vacancy rates decreasing and rental rates slowly increasing. In 2019, office vacancy rate was 8.14% which, according to Colliers, marked the first time it was below 10% in 30 years.
Average rental rates in Grand Rapids now are at $17.12 per square foot, an increase of about 50 cents per year over the last two decades.
As West Michigan continues to grow and expand, Colliers anticipates major growth over the next 20 years along the M-6 corridor, Grand Rapids’ West Side and north toward Rockford.
Some major leases finalized in 2019 were the sale-leaseback of Farmers Insurance, Metro Health at 1310 East Beltline Ave. SE, Hub Insurance at 1591 Galbraith Ave. SE and Morgan Stanley at 5122 Cascade Road SE.
New construction also is popping up throughout West Michigan to help address the space shortage. More speculative space also is coming online, like a 51,000-square-foot Class A office building at the 24-acre JBB Place in Byron Center.
Commercial real estate has become an attractive option for those looking for a stable investment, steady income and an opportunity to diversify their portfolio, and West Michigan continues to be a place where investors are optimistic about putting their money.
Many of West Michigan’s investment deals included fully leased industrial buildings or recently updated properties, according to Colliers. Most investment activity is generated in suburban markets or near the Gerald R. Ford International Airport.
For example, the owner of Precision Aerospace sold its building at 5300 Corporate Grove Drive SE in November 2019. The 129,483-square-foot industrial building has undergone significant enhancements over the years, including new lighting, paint, air conditioning and parking lot improvements.
There is demand for well-managed, long-term leased investments, including multifamily and industrial properties; however, since the supply is limited, prices are increasing. Transaction volume in West Michigan totaled more than $1.48 billion in 2019, according to Colliers.
For 2020, Colliers anticipates some possible investor concerns over the presidential election and tariffs. These factors may cause investors to evaluate transactions more fully to account for possible changes.
JLL, based in Chicago with offices in Detroit and Grand Rapids, released its Q4 2019 market reports around the same time as Colliers presented its 2020 predictions. The two reports show similar trends of slow and steady growth, propelling West Michigan forward in the coming years.
The fourth quarter brought a slowdown to the West Michigan industrial market, JLL noted. Vacancies have risen 70 basis points year over year and appeared to level off at 4.1%. Rent growth also has slowed, as average asking rents marketwide have dropped by 3.7% year over year.
“We use the term slowing in regard to leasing and sales activity,” JLL Senior Research Analyst Harrison West said. “The industrial sector nationwide is red hot. I don’t see the fundamentals turning on their head at all. The West Michigan industrial market has mirrored national trends or trends seen in tier one markets.”
While the market has cooled somewhat, construction activity in the region remains robust, as evidenced by Flexco’s plans to build the new Walker facility.
In Gaines Township, Amazon’s 855,000-square-foot distribution center nears completion, scheduled to open in early 2020, and in southwest Michigan, Scannell Properties plans to construct a new 321,000-square-foot distribution center for FedEx in Portage, just outside of Kalamazoo.
Additionally, JLL saw the office market plateau in Q4. Both rent growth and vacancies remained relatively flat year over year, and most of the quarter’s leasing activity was made up of transactions under 10,000 square feet. One large move was Warner, Norcross + Judd settling into its new location downtown in November 2019. The law firm vacated approximately 90,000 square feet at 111 Lyon St. NW and now occupies 80,000 square feet at the recently delivered Warner Building.
TCF Bank also opened a new regional corporate office on the ninth floor of the Warner Building with a banking center on the first floor.
“Urban cores have been doing very well for most cities in the Midwest, just because of the work-live-play mentality of employees and employers,” said Jeff Karger, senior vice president of JLL’s Grand Rapids office.
Other small leases were signed across the market, including Grand Wealth Management taking space at Bridgewater Place and engineering firm Spalding DeDecker moving into the Calder Plaza Building downtown. In the suburbs, Flint-based Rowe Professional Services opened an office in Kentwood, and Feyen Zylstra moved into a 20,000-square-foot remodeled office and lab space in Walker.