Downtown Grand Rapids remains the key to the region’s development, according to quarterly reports released by several real estate firms operating in West Michigan. Courtesy Experience Grand Rapids
A growing Kent County is helping fuel a healthy real estate market, according to market reports from West Michigan real estate companies.
NAI Wisinski of West Michigan, Colliers International West Michigan and JLL all released their first-quarter market reports and came to similar conclusions: West Michigan is healthy.
Colliers noted metro Grand Rapids is the fastest-growing region in the state, led by Kent County gaining 6,000 residents between 2015 and 2016. The reports suggest a possible increase in all types of buildings for infrastructure and capacity because of the growing demand.
According to the Colliers report, the West Michigan real estate market is nearing the end of the expansion phase, the second of a four-phase cycle made up of recovery, expansion, hyper supply and recession.
This was the first time a quarterly outlook from Colliers included a market investment report, which noted the West Michigan real estate investment market is constrained because of a lack of inventory. Owners are benefitting from the historically low vacancy rates, Colliers reported, which hike operating incomes and raise values.
Colliers Associate Vice President Michael Visser said West Michigan likely will continue to attract out-of-state investors from the region’s strong growth and fundamentals because of the higher yield opportunities.
Cohen Financial Managing Director Cathy Bronkema wrote as long as the economic drivers continue, West Michigan will be a popular place to invest.
West Michigan largely has seen a rise in retail activity, except for this quarter that saw a 15-percent drop in activity, according to Colliers. This was driven by the 91-percent occupancy rate in main retail corridors and a changing retail landscape with major national retailers struggling.
Woodland Mall is planning a $100-million makeover, including the Sears space, an anchor tenant that closed in March. Locally based retailers MC Sports and Family Christian Stores are closing all of their locations following bankruptcies.
“Overall, retail real estate activity around West Michigan remains strong,” NAI Wisinski Retail Advisor Bill Tyson said. “Vacancy rates continue to decline and inventory remains a challenge, requiring creative solutions for finding the right location for retailers or restaurants in key corridors.”
In office, JLL noted occupancy rate steadily is declining, dropping from 20.8 percent in 2013 down to 12.3 percent currently. JLL predicts office construction will pick up, especially in the suburbs led by “plentiful parking and easy highway access.”
Parking in suburban office parks also is feeling a crunch, according to Colliers.
“Whereas minimum parking ratios used to be as low as three spaces per 1,000 square feet, most of today’s office tenants are trying to achieve a denser ratio closer to 5:1,000,” Colliers Office Advisor Tom DeBoer said. “With call centers demanding as many as 10:1,000, this has even put pressure on suburban buildings.”
Parking downtown is not derailing downtown interest, according to Jeff Karger, JLL senior vice president.
Colliers reported eight office construction projects, resulting in 110,000 square feet. Colliers mentioned a watchful eye will be deployed on downtown parking to see whether more suburban construction or redevelopment will take place.
Several major downtown developments, such as Warner Tower and Studio C!, could begin in the coming months, which could factor into whether downtown continues its surge in popularity, Karger said.
“We have some good momentum going,” he said. “There aren’t a ton of new players in the marketplace yet, but I wouldn’t rule it out in the near future. We’re waiting for those projects to start, and they’d be good for downtown.
“It is a fragile economy, downtown, whether it’s Detroit or Grand Rapids. Momentum is moving forward, but you have to keep it going.”
Colliers’ report mentioned construction is allowing local companies to expand and noted 17 industrial construction projects with 1.3 million square feet. Despite the construction, the report notes the industrial occupancy is nearly 95 percent full.
Because of the high occupancy, JLL noted rents continue to increase and made special note of outside investment into the industrial sector, including a $32-million deal by New Jersey-based Monmouth Real Investment Group for a leaseback deal for the FedEx building in Wyoming. JLL suggested construction costs are continuing to limit speculative construction of industrial space.
Among the new construction Colliers highlighted were a 500,000-square-foot building by Lacks Enterprises and a 125,000-square-foot project from Gourmet International.
Potential legislation proposing a $54 billion increase in defense spending could help West Michigan aerospace companies, such as JedCo Inc., Woodward Inc. and Plascore Inc., expand.
The tight industrial market is hitting the lakeshore, said Stu Kingma, an associate broker at NAI Wisinski who specializes in industrial. Kingma said he recently closed a deal in Norton Shores, which showed the Great Recession recovery has hit marks from other dips in the economy he has worked through in his career.
“Historically, Grand Rapids gains steam first,” he said. “It starts here and migrates to Holland and finishes in Muskegon and Norton Shores. This was no different, there wasn’t a significant oversupply in Norton Shores, but values are back based on where they should have been.”