Although much of the country may think Michigan’s economic outlook is bleak, Grand Rapids is still holding on strong through the economic downturn. The city is faring better than Southeast Michigan and currently is looking toward the future. With more than 1 billion square feet in proposed construction, the area is getting a head start on the rebound, especially in the medical office sector.
Absorption in the traditional office market is slow, causing there to be less speculative development in the pipeline. That being said, Grand Rapids is experiencing an influx in medical office and healthcare development, especially in the central business district (CBD), where Michigan State is currently developing a new medical school.
Even with medical office development proposed and under way, there is a perception that companies need to wait and see what everyone else decides to do before making any decisions for themselves. This pause is fueling a vicious cycle in the market that is making it difficult to get deals across the finish line.
Like many markets across the nation, the leasing sector of Grand Rapids is seeing a great deal of concessions and incentives pass from landlords to tenants. Some owners are making bare-bone deals in an effort to cover debt and expenses with the idea that by doing short-term leases they will be able to ride out the storm and remain intact. With rumors of local developers and landlords in financial trouble, selling and leasing activity, including concessions, may be picking up in the next 6 months. Once the dust settles, there will be a more clear idea of the companies that have been eliminated and the firms that are still in the game.
There is a large range for Class A rental rates and a huge definition of Class A property because there has not been any new office development in the central business district. Asking rates are around $18 to $25 per square foot, but deals are typically coming in on the low end of those rates, at around $17 and $20 per square foot, whether the leases are triple net or gross.
For future development and activity, the Southeast Corridor, especially near 96th and 28th streets, is poised for development and continued activity. Additionally, Cascade Road has had a good market for the last few years, although there is not much room for new development. When things turn, possibly in the next 6 to 18 months, there should be additional activity downtown.
— Kirt Ojala is the regional director of leasing for The Hinman Company, which is based in Portage, Michigan.