Real estate market reports show slow, positive gains

Industrial market stays active while office and retail remain mixed.
Sparrows Coffee is opening a new location at Kingma’s Market in the Creston/Cheshire Village neighborhood, 2225 Plainfield Ave. NE.

Some speculative industrial construction is on the horizon in West Michigan. Meanwhile, retailers are struggling to staff vacant positions in the wake of the 2020 pandemic, and many large and national companies still are hesitant to send people back to the office.

The West Michigan industrial market continued to perform well despite the challenges of the past year. According to the second quarter reports from NAI Wisinski of West Michigan, overall vacancy sits at 3.3%, which crept up slightly since the end of 2020, which finished at 2.7%.

NAIWWM Industrial Specialist Andrew Kapanowski said the slight increase in vacancy appears to come from the Southeast Grand Rapids and lakeshore submarkets and is most likely due to speculative construction coming available.

Average rental rates for Q2 sit at $4.76 per square foot, which is up from the average $4.28 triple net rental rates in Q1.

“These numbers are signs of the record-high demand we are seeing in the West Michigan industrial market and speak to the lack of inventory available for lease,” Kapanowski said. “We expect these rates to remain high through 2021 but should start to level off as new construction comes available and helps satisfy demand.”

New construction is expected to persist through 2021 as the continued lack of inventory has kept demand near an all-time high. That said, skyrocketing construction costs have some developers waiting until costs come down again before breaking ground on new projects.

Kapanowski added many deals are continuing to take place off market, and many of these off-market transactions happen before signs are out and are based on relationships within the brokerage community. Quality buildings that find their way into the marketplace tend to go quickly, he said.

Some notable market activity in Q2 included Mission Design & Automation’s near-completion of a new 50,000-square-foot facility at 9898 Black River Court in Holland.

The industrial automation and robotics company invested over $5 million into the expansion and plans to add at least 109 high-tech jobs in West Michigan. The company is receiving financial support for job training from the Michigan Strategic Fund of the Michigan Economic Development Corporation and West Michigan Works!, as well as a 12-year industrial facilities tax exemption from Holland Charter Township.

Additionally, Autocam Medical, a Kentwood-based global contract manufacturer of precision surgical and medical components and devices, is investing $60 million through 2024 to build a new headquarters and manufacturing facility in Kentwood. The new facility will be 100,000 square feet, located at Broadmoor Avenue and 36th Street and will be ready for occupancy in January.

After much uncertainty, Q2 of 2021 is starting to see how the effects of the pandemic and work restrictions impacted the Grand Rapids office market. More immediate was the concern over how the office market would react to the lifting of said work restrictions, which took place during this quarter.

“Parking lots have seen more cars in them than in the last 15 months but are still not ‘full.’ Some businesses are back to pre-COVID normal, while some are cautiously moving back to in-person work, and others are still working remotely,” said NAIWWM partner and Office Specialist Mary Anne Wisinski-Rosely. “The trend that we are seeing is that smaller, local businesses are back to the new normal, while many larger, national/global companies are still working remotely with limited in-person work.

“Some companies are committed to coming back to the office 100% while others find that remote work is possible either full time or on a hybrid model.”

Vacancy rates have seen a slight increase as companies decide how to move forward. Some have given up their space entirely and others have downsized their current location or moved to a smaller space if their lease allowed. There are a few companies that have actually increased their space needs to better spread out their employees. 

In Q2, vacancy rates overall stood at 6%, up from 5.5% in Q1, and the total average rate per square foot was $15.58, slightly down from $15.60 in Q1.

The only market segment that saw a slight decrease in vacancy rates was the Southeast Grand Rapids Class B&C market — 6.3% compared to 6% in Q1. The suburban markets seem to be doing better than the downtown market in general. In addition, lease rates have increased slightly in all areas with the exception of the NW office market that saw a slight decrease in lease rates.

Vitreo-Retinal Associates, an ophthalmology practice providing eye care services in Grand Rapids, Kalamazoo, Muskegon and Ionia, announced in June it plans to double its Kalamazoo space in 2022. Currently located in a 4,800-square-foot space at 1080 N. 10th St., the new location will be a new single-tenant building at 1060 N. 10th St. in the West Pointe Office Park.

MCPc also will be moving to 1601 Madison Ave. SE in 2022. The Cleveland-based technology logistics and data security company will be replacing the building that sat vacant for decades and broke ground on the new project in July. This move to the heart of Madison Square is expected to bring roughly 100 new jobs to the local community.

Easily the hardest hit sector during the 2020 pandemic, retail is now gaining momentum in Q2, but that momentum is being hindered by a lack of employees. Retail businesses, in many cases, are offering more than minimum wage and signing bonuses to attract much-needed help. Some restaurants still are doing take-out only or have very limited hours because they don’t have the staff to accommodate consumer demand.

“The good news is that leasing activity in our market is up,” said Bob Lotzar, NAIWWM senior vice president and retail specialist. “The demand for smaller shop space has picked up considerably over the past month. West Michigan is also seeing national retailers enter our market for the first time.”

Overall vacancy stands at 7.4%, and the average asking rate is $10.52 per square foot. These numbers are virtually unchanged from Q1, when the overall vacancy was the same, and the average asking rate was $10.46 per square foot.

Whole Foods is under construction on 28th Street SE across from Woodland Mall. Ross Dress for Less is currently looking at sites in Grand Rapids for the first time. Other retailers, such as Tropical Smoothie Café and B2 Outlet Stores, are looking to expand within the local market.

Quality, Class A space in the most prominent retail corridors is difficult to find, Lotzar said. The spaces available are still commanding pre-COVID lease rates. The momentum in the West Michigan retail sector likely will continue to build through the remainder of the year but will be dependent somewhat on the ability of business owners to fill open positions.

Grove, the farm-to-table fine dining restaurant by Essence Restaurant Group, will be reopening this fall. Located at 919 Cherry St. SE, Grove was closed due to COVID-19. During the closure it was converted into a temporary chicken takeout place and later a private dining space. When it reopens, Grove will have a refreshed interior and a new menu with 13 to 15 daily seasonal offerings.

Grand Rapids-based boutique coffee shop Sparrows Coffee is opening a new location at Kingma’s Market in the Creston/Cheshire Village neighborhood (2225 Plainfield Ave. NE). The new shop is roughly 600 square feet and offers a spacious outdoor patio. Sparrows is open from 7 a.m.-4 p.m. daily. Sparrows also will be partnering with local vendors such as Rise Bakery, Lively Up Kombucha and Atucún Chocolate.

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