Industrial market comes back strong

Colliers report shows office and retail still are suffering, however.
436
After a brief COVID-19 respite, leasing and sales activities for industrial spaces have returned to pre-pandemic levels. Courtesy Colliers West Michigan

Some commercial real estate markets continue to fare better than others during the COVID-19 pandemic, according to Colliers West Michigan’s 2020 Q3 market reports.

“The COVID-19 pandemic has offered us in the commercial real estate industry unprecedented challenges, and some markets are recovering better than others,” said Jon Potvin, managing director at Colliers West Michigan. “We’re taking those challenges day by day and continue to be innovative in ways we work for clients to help them navigate the uncertainties of today and prepare for the future.”

The West Michigan industrial market is back in full swing in Q3 after a very brief slowdown due to the pandemic, according to the report. People were more active in the industrial market with more leasing and sale activity leading back to pre-COVID-19 levels of demand – if not slightly more active, Potvin said.

The vacancy rate for industrial continues to remain low at 2.38%. Demand remained greater than supply in Q3, and rental rates were at $4.84 per square foot, an increase of 3.2% from Q2.

“Most industrial users have come through this major crisis in good shape, and many have flourished,” said Steve Marcusse, SIOR, CCIM and senior vice president at Colliers. “In many ways, the industrial market remains ‘business as usual.’ We expect activity to continue or increase going forward.”

In Q3, Chicago-based General Truck Parts entered the regional market with its first Michigan facility in Walker. Conversely, the 201 Market St. SW development at the 15-acre, city-owned site along the Grand River is off the table once again. The city of Grand Rapids and an Indiana-based developer decided the cost of cleanup and infrastructure improvements needed were too expensive to move forward, but Colliers expected there could be more development news for this property in the future.

Several construction projects were underway in Q3, including the completion of an 81,000-square-foot efficient pre-cast building at 5199 68th St. SE. It is the first of four multitenant flex-space spec buildings planned in the new Crossroads Commerce Park.

Robert Grooters Development Co. broke ground on the Alro Plastics building along M-6, a 160,000-square-foot manufacturing facility, while Coca-Cola broke ground on a 206,514-square-foot distribution facility neighboring the Amazon distribution center in Gaines Township. It is estimated to be completed in early 2021.

On the other hand, the West Michigan office market continued in a major slowdown due to the pandemic, with many companies keeping workers at home. Activity is quiet, with employers and investors operating with wait-and-see approaches until concrete talks begin about how offices will look once employees can safely return to work.

The vacancy rate for downtown office space is 9.73% and the suburban market’s rate is 6.89%. This is a slight increase from Q2 and earlier this year.

“The office market is holding its collective breath, but a significant pickup in office activity is not likely to happen this year as many companies continue to keep workers home,” said Gary Albrecht, senior associate at Colliers. “We may begin to see more permanent changes to the nature of workplaces due to safety guidelines, social distancing needs and overall changes to how people work.”

Tenants and sellers generated the most activity in the office market in Q3. Tenants seem to be returning to the market very slowly and are mostly small users. There still are some buyers searching for opportunities with ample parking and nice, quality buildings in the most desirable West Michigan corridors.

Inner City Christian Federation, a Grand Rapids nonprofit, soon will complete a $19 million renovation of its new offices at 415 Franklin St. SE. Other notable construction and deals have been slow throughout this year, however.

The struggles facing retailers amid the COVID-19 pandemic continued throughout Q3 and show no sign of letting up despite a very slight increase in activity this quarter. Like Q2, drive-thru deals and essential businesses remained viable in Q3, with some quick-service restaurants looking to decrease their footprints to prioritize takeout and delivery.

Many retailers continued adapting on the fly. Advisers predict the vacancy rate, which was 4.78% in Q3, will increase if retailers and restaurants are unable to open with increased occupancy, especially as colder weather sets in and outdoor seating no longer is an option.

In August, 7-Eleven convenience stores agreed to buy Marathon Petroleum’s Speedway gas stations for $21 billion. Several major retailers and restaurant companies filed for bankruptcy this year, including Art Van Furniture, Pier 1 Imports, J. Crew, JCPenney, Tuesday Morning, GNC, Brooks Brothers and more.

“It’s no doubt that our retailers are struggling right now, and we’ve lost some great restaurants and retail over the past quarter,” said Chris Prins, associate vice president at Colliers. “Unfortunately, we may see more vacancies occur, but this has allowed some new users to enter the market.”

Retail activity in Q3 was defined by new food concepts, single-tenant buildings, and an abundance of patience from retailers and landlords. Activity was heightened by buyers that have been taking advantage of low interest rates and are wanting to build new single-tenant buildings, as well as local mom-and-pop tenants occupying second generation space. Local businesses stood out as a balance in their respective economies as there was limited activity from national users.

Despite an obvious slowdown, there were some notable sales in Q3. Gas station Circle K acquired 5.4 acres of vacant land off-market at 6851 Broadmoor Ave. SE. Circle K is planning to build a new store this fall.

Legacy Family Chiropractic signed a 10-year lease in a newly constructed retail strip at 4076 Alpine Ave. NW, and Align Nutrition, a juice bar, leased space for its first store at 1144 East Paris Ave. SE.

Popeye’s opened two locations, one at 5448 S. Division Ave. in Kentwood and a second at 2446 28th St. SE in Grand Rapids. Tupelo Honey Café also recently opened for business at Hyatt Place hotel in downtown Grand Rapids.

Facebook Comments