Thank you to the Industrial, Retail and Office specialty Groups for creating the 2017 REVIEW:
The retail market is alive and well in West Michigan, with property sales of nearly 60.9 million dollars, an increase of 60% over 2016. The number of sale transactions is up 14% over last year. The number of lease transactions is slightly down, as vacancy rates continue to be at all-time lows. The low vacancy rates cause rental rates to continue to trend upward.
“Leasing is down due to availability, but sales are up because of various financing options,” shared Bill Tyson, NAI Wisinski of West Michigan. “We are seeing the primary retail corridors nearly fully leased, turning some toward the purchase of a building instead.”
Mike Murray, Colliers International, added “With such a tight market and low vacancy, deals are still getting done, another sign that ‘brick and mortar’ retail is still very viable.”
“While online sales are showing some growth in market share, the numbers nationally are showing less than 10% of sales are done online, depending on the category. We are also starting to see the online only retailers moving toward brick and mortar. Customers still want to touch and feel the products and experience the brand in person. A good example of that is Amazon’s purchase of Whole Foods, or the new construction of Duluth Trading Company in Rivertown,” Other online only retailers like: Bonobos, Athleta, Warby Parker, and Sierra Trading Post are adding physical stores to their business model,” explained Elliott Muller, Ben Muller Realty.
Another indicator of the vibrant health of retail can be found in small areas. “Neighborhood retail continues to grow and strengthen, with great restaurants and unique retail in areas like the Creston neighborhood, Bridge Street, and Eastown,” Rod Alderink, NAI Wisinski of West Michigan stated.
West Michigan is also seeing a flurry of activity in the hotel industry. Dave Denton, DAR Development, discusses that trend, “There are at least 6 hotels under construction right now in Grand Rapids. The hotel business is doing very well here, and shows the growth in business travel and tourism to our area that is helping our restaurants and retailers.”
There are noticeable areas of reconstruction, with some outdated buildings being torn down to make room for new. The former Sears building at the end of Woodland mall is now gone, and a high-end retailer, Von Maur is constructing a new store. Parts of the retail area at Ramblewood will be removed, making way for updated retail. Some older small-footprint buildings are being scrapped with plans for new construction.
New business is coming to the area in a variety of forms, and not all are national. “The mom and pop small businesses that are opening are much more sophisticated than in the past. The local breweries or farm-to-table restaurants showcase some of our home-grown talented retailers,” Murray said.
As the retail specialists consider the possibilities in the area there doesn’t seem to be a push to create an entirely new retail area. The group also points out that although there is no traditional retail corridor downtown, those spaces fill with a variety of restaurants, breweries and bars.
“It is a fun time to be a retail specialist,” shared Elliott Muller,” We have to be creative and pursue a variety of options to help our clients be successful.
The office market in West Michigan continues to be active, with 1.4 million square feet of space being leased or sold during 2017. The number of lease transactions increased by 6% over 2016, but the lack of properties available for sale caused the number of office buildings that sold to be slightly less than 2016. The price range per square foot of downtown office space is $18 – $25, and the price range per square foot of suburban office space is $12 – $20, and dependent on a variety of factors.
“Activity is steady and there have been some decent deals completed in 2017,” said Jeff Karger, Jones Lange LaSalle. “As more renovation takes place, I expect that additional options will become available downtown soon.”
“Clients are taking a close look at the cost to occupy downtown space, which commands higher lease rates with potential parking issues and are weighing the costs against locating in the suburbs,” stated Mary Anne Wisinski-Rosely, NAI Wisinski of West Michigan.
David Wiener, Colliers International, partially agrees,” I have some clients investigating locating outside of downtown, but others are working to attract younger workers, and they know that close proximity to our vibrant downtown is extremely important.”
Vacancy rates in both downtown and suburban areas are comparable to 2016, but Chip Bowling, X Ventures, is beginning to notice as slight change in the lease rates in Class B office buildings. “Activity was strong but in general, the vacancy rates in the downtown Class A office buildings remained flat or slightly decreased. The Class A office buildings that have connected parking ramps or access to parking ramps continue to command the top rental rates. Class B office building owners who do not control their own parking or do not have direct access to parking are beginning to see and realize vacancy in their buildings and as a result are beginning to reduce their rental rates to help offset the lack of parking in their respective areas of downtown.”
Jason Makowski, NAI Wisinski of West Michigan, notes another trend. “I am starting to see activity on buildings that have been vacant for a while, mainly because the lack of inventory is forcing buyers to take another look, with the understanding that renovation or repositioning is going to be necessary.”
All agree that downtown parking is a critical issue affecting many owners. “Most Class B buildings do not have parking lots, and must rely on ramps or private surface lots, which can add a significant cost to the tenants,” said Wiener. Karger adds,” Parking is one of the more critical issues that landlords have to reconcile.
The 2017 industrial market remains steady and strong, and very similar to 2016, with well over $104 million in sales reported to the MLS. Industrial specialists report that, due to less than 5% vacancy, many additional off-market deals occurred.
“The downturn of 2009-2010 resulted in the sale of many existing manufacturing buildings that were repurposed and are now fully leased .Those opportunities are no longer available, and with under 5% vacancy, deals are happening in less conventional ways,” said John Kuiper, Colliers International.
Stu Kingma, NAI Wisinski of West Michigan, agrees “The market is very similar to 2016, with a shortage of inventory, requiring more creative solutions for clients. In this West Michigan market, there is not much available in the way of large industrial buildings.”
“This market is definitely requiring some vision and innovation to present our clients with viable options for their business locations, and there isn’t much available to redevelop for reuse,” stated Drew Miller, CBRE|Grand Rapids.
The Industrial Specialists are carefully watching the increases in vacant land sales for industrial purposes. “The past two years have shown an increase in the sale of vacant land,” stated Cathy Bottema, Signature Associates. “We are already seeing new construction of manufacturing and warehousing space, and I expect to see more in the coming year.”
Steve Marcusse, Colliers International, added, “Industrial property vacancy is the lowest our office has recorded in nearly twenty years. Because available industrial properties are at record low numbers, now is a great time for property owners to consider becoming part of the seller’s market.”
All information is deemed reliable but is not guaranteed and should be independently verified.
This report is prepared by the Retail, Office and Industrial Specialty Groups of the Commercial Alliance of REALTORS® [CAR], a REALTOR® association serving the commercial real estate community of West Michigan. Visit www.carwm.com to search available properties and to learn more about the organization.