Reports from the office real estate sector for the third quarter indicate steady improvement. Overall, vacancies continue to decline, resulting in higher rental rates.
The quarterly report released by JLL in Grand Rapids highlights a steadily declining vacancy rate for the Grand Rapids metro area.
Jeff Karger, senior vice president of brokerage for JLL, said the vacancy decline largely is attributed to expansion by existing firms.
“You have SalesPad expanding in the suburbs, Spectrum Health continues to grow,” Karger said. “Those types of expansions are what’s driving rent up. SEI just signed a lease at Bridge Pointe.”
Previously, the Business Journal reported Service Express Inc. (SEI) leased 39,617 square feet of office space on the first floor of Bridge Pointe Office Park in southeast Grand Rapids and an additional 20,744 square feet on the second floor.
The JLL report also indicated higher quality, or “Class A” space, has seen an uptick in vacancy because of consolidation. Vacancy of downtown Class A buildings was 15.9 percent compared to 9.2 percent for Class B buildings.
Fifth Third Bank vacated approximately 70,000 feet at 200 Monroe Ave. NW to move to 111 Lyon St. NW. Advantage Sales and Marketing also is consolidating two locations into one, vacating 30,000 square feet at 56 Grandville Ave. SW. The firm is taking about 100,000 square feet at the former Rogers Department Store on 28th St. SW in the southwest submarket.
Karger predicted the urban core market will see a rise in vacancy in 2018 and 2019 because of consolidation. As vacancy increases, rent growth will slow a bit.
The third quarter report released by NAI Wisinski of West Michigan also showed a decline in vacancy of downtown office space compared to the second quarter.
A Detroit-based law firm, Lusk Albertson, opened an office in downtown Grand Rapids located at 124 E. Fulton St. The firm also will retain its current location at 409 E. Jefferson Ave. in Detroit.
NAI Wisinski similarly reported a higher rate in vacancy among Class A buildings in the downtown area. Class A buildings had a 7.6 percent vacancy rate while Class B and C buildings had a 4.3 percent rate. The total vacancy rate for downtown was 4.9 percent, according to the NAI Wisinski report.
Comparatively, vacancy rates in other parts of Grand Rapids, particularly the northeast and northwest sides, were lower at 3.8 percent and 2.9 percent, respectively. Vacancy was higher in the southeast sector, at 7 percent, and in the southwest, at 5.4 percent.
“Some of it could be due to the increased cost of being located downtown,” said Mary Anne Wisinski-Rosely, office specialist and partner for NAI Wisinski. “Your rent is somewhat higher than in the suburbs. A company can save a lot by being out of downtown.”
Wisinski-Rosely said NAI is seeing an increased demand for office space in the outskirts of the downtown area, where tenants can be close to downtown but don’t have to pay higher rent.
In the retail sector for the third quarter, NAI Wisinski reported a vacancy rate of 7.5 percent. Both vacancy and construction have gone down compared to the previous quarter, while asking rates have gone up.
Quarterly reports for the industrial sector in West Michigan also highlighted a decrease in vacancy and growth in rent, showcasing a steady improvement in market conditions.
According to JLL’s quarterly report, more than 1.5 million square feet of industrial space has come online so far this year, though the construction pipeline has somewhat dwindled. Only 518,436 square feet of space is under construction in West Michigan. Nearly all of the construction activity has been build-to-suit projects, as building costs remain too high for speculative development.
Vacancy in industrial space was 4.6 percent with an average asking rent of $3.24 per square foot.
JLL predicted mergers and acquisitions will pick up in West Michigan as companies move to consolidate or eliminate redundant assets, such as warehouses and manufacturing facilities.
The industrial snapshot from NAI Wisinski also shows a lower vacancy rate, 1.6 percent, and higher asking rates, $3.85 per square foot, compared to the second quarter.
According to NAI Wisinski, Plascore is adding 73,500 square feet to its aerospace business unit facility in Zeeland, at 500 E. Roosevelt Ave., and Grand Rapids-based First Companies finished construction on two new buildings along a major industrial corridor. ETO Magnetic will be occupying an 82,000-square-foot building at 5925 Patterson Ave. SE, and Gourmet International will be occupying a 124,000-square-foot building at 5253 Patterson Ave. SE.