Looking back on the first quarter of 2019, the office market continues to tighten up, according to local real estate market reports.
For the first time in 30 years, Colliers International West Michigan observed a vacancy rate for both the central business district and suburban office markets below 10%. Downtown Grand Rapids is at 9.4% and the suburban market is at 8.1%.
The trend speaks to the need for more new construction in all markets. However, costs of labor and materials — as well as extremely busy contractors — continue to stifle new construction, and Colliers doesn’t expect rates will fall back to the same levels they were five years ago.
At the same time, new space is filling quickly as it comes online. The Colliers report highlighted Van Wyk Risk Solutions signing a lease for 17,000 square feet of Class A office space in the Warner Building at 150 Ottawa Ave. NW. According to an earlier Business Journal report, the firm signed off on the last available office space in the yet-to-be-completed building.
Key tenant for the Warner Building, Warner Norcross & Judd, is vacating its old, 90,000-square-foot office at 111 Lyon St. NW, the Business Journal has previously reported.
CWD Real Estate also recently announced 37 Ottawa Ave. SW, formerly attached to 50 Monroe Ave. NW, is tenant ready. The historic building has 80,000 square feet of available space, according to the real estate group.
As the downtown core tightens up and downtown rent rises, the suburban market continues to attract office users. Notable leases include Ally Logistics going into 20,000 square feet at 1090 36th St. SE and KeyImpact Sales & Systems relocating from downtown to 9,500 square feet at 4695 44th St. SE.
Buyer activity also increased throughout West Michigan as more employers are looking for long-term options. West Michigan Community Bank recently purchased a 6,800-square-foot vacant building at 4797 Cascade Road SE with plans to demolish the current building and build a new bank.
According to Colliers, buyers tend to be smaller regional firms, whereas corporate groups tend to rent unless they are establishing a headquarters. Tenants are looking for long-term options because supply is tight and it’s expensive to move.
The Colliers report is substantiated by other firms’ findings. JLL, a Chicago-based real estate company with an office in Grand Rapids, gave a total vacancy of 9.2% for downtown office space, while vacancy in the suburbs stood at 11.4%. Average asking rent for downtown and suburban office space was $19.95 and $17.41 per square foot, respectively.
According to JLL, just over 12,000 square feet of space was absorbed in the first quarter, with downtown making up most of the positive absorption. Vacancy held steady, compared to 10% in 2018, while average asking rents, $18.58 per square foot, mark a 3% increase year over year.
New inventory promises to fill the downtown market, most notably, an office tower tied to the Studio Park project. As the Business Journal previously reported, the certainty of the office building came into question after Illinois-based Franklin Partners withdrew from the project, citing its inability to draw a key tenant.
Studio Park’s master developer, Olsen Loeks Development, however, took up the mantel and promises to deliver all facets of the project. Although construction has yet to begin on the office tower, it promises to deliver 81,598 square feet of Class A office space to the market, along with 268 office-specific parking spaces and high visibility for an anchor tenant to advertise from northbound U.S. 131.
JLL expects conditions to remain stable. Construction figures will increase as Studio Park’s office component breaks ground and development along the East Paris Corridor increases. New-to-market tenants are expected to continue to drive leasing activity for 2019, and companies that have recently established a presence likely will expand.
NAI Wisinski of West Michigan observed a total vacancy rate of 3.7% in the first quarter. Suburban vacancy rates were broken up by the northeast (5%), northwest (3.9%), southeast (6.9%) and southwest markets (2.9%).
NAIWWM observed a total average asking rate for downtown Grand Rapids of $18.81 per square foot.
Notable activity in the NAIWWM Q1 report includes the DeVos-owned firm RDV Corporation unveiling its plan for a new headquarters downtown, at 200 Monroe Ave. NW in Grand Rapids. Construction is slated to begin in June.
Other entities that will be based in the facility include Ottawa Avenue Private Capital and the DeVos family foundations.
SoundOff Signal, a maker of vehicle lighting and various safety products, is expanding its headquarters in the area. NAI Wisinski of West Michigan represented the unnamed seller in the transaction of a 31,000-square-foot building at 4182 Royal Court, in the same industrial park as SoundOff’s current 97,000-square-foot headquarters, at 900 Central Pkwy., Hudsonville.
Although employers are struggling to cram together, the tight market is a sign of a strong labor market, real estate professionals said. According to NAIWWM, the unemployment rate for the Grand Rapids/Wyoming metro stands at 2.9%, compared to 4% nationally. Colliers reported Ottawa County’s unemployment rate stands at 2.9%.