NAI Wisinski of West Michigan recently put out its fourth-quarter/year-end reports covering the industrial, office and retail markets of West Michigan, highlighting continuing trends echoed by the recent Colliers International forecast.
Across all sectors, signs point to a strong market as spaces fill up fast and more deals take place off-market. Consequentially, 2018 may come with the same challenges of finding where to place new tenants.
In the industrial world, less space and more demand continued to drive prices up, which is good news for those looking to sell or lease space.
By NAIWWM’s records, 2017 has seen some of the highest prices and lowest vacancies in the regional industrial market. The fourth quarter closed on an overall triple net rental rate of $4.08 per square foot, which did not change considerably from the third quarter. Rental rates for warehouse and high-tech flex space increased, while rental rates for manufacturing decreased. The fourth quarter also saw a total vacancy rate of 1.6 percent, which is a small decrease from last quarter.
“Not a lot has changed,” said Stu Kingma, associate industrial broker with NAIWWM. “While this business moves at an extremely high velocity, not much changes except for a huge geopolitical event.”
The industrial market continues to face a shortage of inventory, as high demand remains constant. According to the report, it is not unusual for deals to come together before they even hit the market, but it also predicted a higher number of speculative builds going into 2018 and 2019 to meet demand.
“Our vacant land deals, which is a clear indicator of the lack of existing buildings to sell or lease, is pushing 50 percent, which is unusually high,” Kingma said. “That points to what we’ve been saying is that there isn’t much inventory.”
“We’ve seen a fair amount of spec buildings in the smaller square foot increments, he added. “You’re going to build a 30,000- or 40,000-square-foot building and split that up into several tenants. Those tenants have been paying a high enough rent to support the cost of construction.”
Kingma explained the departure in new builds comes from larger square foot projects, where tenants’ rental rates are not yet high enough to support new construction.
Some noteworthy market activity in 2017 includes the Holland-based trucking and logistics company Hutt expanding its Hudsonville warehouse by 81,000 square feet. Freshwater Digital, a local digital signage firm, also expanded by moving its operations to a larger space in Kentwood near the Gerald R. Ford International Airport.
In the office sector, activity remained high in 2017, though lease rates have plateaued somewhat, particularly in the downtown market. This may be because of the increased cost of occupying space downtown, as well as the challenge of parking space.
The cost of occupying space downtown overall is higher than in other submarkets. The total average rate for downtown space during the fourth quarter was $17.93 per square foot, compared to the suburban markets, which ranged between $14.56 and $11.59 per square foot.
Rental rates for Class A space have gone up slightly since the third quarter, as have rates for Class B and Class C.
Vacancy rates overall have gone up slightly over the last quarter but still remain below 2016’s numbers. This year closed on an overall vacancy rate of 6.2 percent, with 5.4 in the downtown market, 3.9 percent in the northeast, 3.7 percent in the northwest, 5 percent in the southwest and 8.4 percent in the southeast.
“Southeast, there’s a lot more office space,” said Mary Anne Wisinski-Rosely, partner/office adviser with NAIWWM. “I think some of it is there have been some new buildings built. It’s a primary suburban office area, so it could be a fact of people moving from one building to another building.”
In the suburbs overall, there has been new construction but primarily for owner-occupied properties. The suburban submarkets are experiencing a shortage of office properties available for purchase, while the percentage of space available for lease remains flat.
Vacancy rates downtown may increase as the new Warner Building on Ottawa Avenue nears completion, putting Warner Norcross and Chemical Bank’s former spaces back on the market.
Some notable market activity includes ChoiceOne Bank purchased a building located at 330 Market Ave. SW for its first downtown branch, slated to open in late summer 2018; BluJay Solutions, a global supply chain company, established a new U.S. headquarters in a 77,600-square-foot building at the Holland Technical Center; and William B. Eerdmans Publishing listed its building at 2140 Oak Industrial Drive NE for sale and moved its corporate headquarters to 4035 Park East Court.
2017 also closed on a strong year for retail, in spite of growing concerns over a possible “retail apocalypse.” Newer, smaller retail players were quick to fill in space left behind by big-box titans. The Sears at Woodland Mall shut its doors but will soon be the new home of high-end retailer Von Maur, as well as other in-mall and out-lot tenants.
The former MC Sports and Family Christian Stores also were repurposed quickly, and the area’s first Ashley Furniture will occupy MC’s former location on 28th Street.
Like with the office and industrial markets, the high rate of activity comes with the challenge of finding space for new tenants. 2017 ended with an overall vacancy rate of 7.5 percent, which was about equal to the third quarter but still lower than in 2016.
Rental rates for strip centers have steadily gone up each quarter, sitting at $11.96 per square foot at the end of 2017, compared to $11.14 per square foot in the third quarter. Comparatively, rental rates for neighborhood centers, like convenience stores, have remained relatively stable, and rental rates in community centers, like supermarkets, have gone down in recent years.
New construction projects are being built along East Beltline Avenue north of Knapp Street to meet the demand for new space, but Class A retail space in the primary corridors remains tight.
“While the face of retail is changing, this new construction combined with other hot neighborhood areas like the lower West Side, Wealthy Street and the Michigan Street corridor, continue to demonstrate that in West Michigan there are far more retailers opening stores or expanding their footprint size than closing locations,” said Rod Alderink, partner/associate broker with NAIWWM.
Some notable market transactions for the fourth quarter include family-owned Sarah’s Sweets Bakery signing a 10-year lease for a larger, 1,300-square-foot space in a new development at 2365 East Beltline Ave. NE and 4G Athletic, an 11,000-square-foot boutique fitness studio at 2141 Port Sheldon St. in Jenison.
Canopy by Hilton also announced plans to build a new, 164-room hotel in downtown Grand Rapids. The hotelier will partner with Lodgco Hospitality and Olsen Loeks Development. Canopy by Hilton is scheduled to open in late 2019.