Mary Anne Wisinski Rosely,
NAI Wisinski of West Michigan
Downtown Grand Rapids is booming with commercial real estate activity, and it’s coming from many directions. The combination of new residential units, restaurants, bars and a variety of entertainment options is leading people to not only live downtown, but also work and play downtown.
Activity in the downtown office market — including office leases, new mixed-use construction and new retail — has increased over the last couple of years, and there is no sign of it slowing down.
The overall office vacancy rate in the central business district (CBD) decreased from 9.4 percent in the first quarter to 8.25 percent in the second quarter. While Class A office space has performed well in recent quarters, there was a slight increase in the vacancy rate during the second quarter.
As for Class B space, we observed a sizable decrease in the vacancy rate, from 10.1 percent in the first quarter to 8.5 percent in the second quarter.
As a whole, the CBD office market experienced positive absorption of 74,293 square feet during the second quarter.
Rental rates stabilized in the second quarter after increasing for the past several quarters.
Meanwhile, some new construction and planned construction is hitting the market at asking rental rates in excess of $20 per square foot. The stabilization of rates is likely a temporary condition, as we expect to see an uptick in rates over time as a result of this activity.
Brisk Pace of Office Sales
Over the past four years, we have seen several prominent downtown office buildings change hands. Many of these buildings have either undergone a renovation, or are in the process of doing so.
These renovations are paying off for the landlords in the form of increased occupancy and higher rental rates.
Many of the downtown office buildings, which are now at or near full occupancy, don’t have adequate space available to accommodate prospective tenants.
A good example is the Comerica Building, located at 99 Monroe Ave. Franklin Partners acquired the building in 2011. At the time of purchase, the building was over 50 percent vacant.
Franklin Partners invested nearly $4.5 million in renovations and boosted the rental rates. Now, less than four years later, the building is at 100 percent occupancy. Several other building owners are following suit and experiencing great success in doing so.
The 11-story, 373,000-square-foot Arena Place development will not only tower over its brick-laden neighbors, but the mixed-use project also will offer a distinct look with its floor-to-ceiling glass windows and lighter exterior finishes.
Arena Place Takes Shape
Some new construction is also taking place downtown. Arena Place is a 373,000-square-foot, mixed-use building under construction on the south side of downtown. The target date for completion is the first quarter of 2016.
Arena Place will include 60,000 square feet of office space, 15,200 square feet of retail, 100 apartments and 280 parking spaces.
Signed leases are already in place for nearly all of the building’s office and retail space. Orion Construction is spearheading the project.
Act II for Development
In light of the growth of Grand Rapids, is there additional room for expansion?
The short answer is “yes.”
We are seeing an increase in demand for office space on the south end of downtown in the vicinity of Arena Place and the Van Andel Arena. There are several city-owned parking lots in this area that are most certainly slated for future development.
The north end of downtown also has great potential for future development.
This area experienced a surge in activity several years ago, but slowed during the recent recession. The current uses in this area include residential, office, retail and some light industrial.
The conversion of a large four-story office building along a main road near the city’s primary waterway, the Grand River, is underway by local developer 616 Development. The project is part of a trend of converting former factory buildings that line the north and south boundaries of downtown.
This renovation is likely to spur additional activity. Called Lofts on Monroe, the project involves gutting a former factory turned mixed-use building into studio, one- and two-bedroom apartments on the upper floors and retail and office on the ground floor.
Pre-leasing for the residential units, which range between 800 and 1,000 square feet, has been brisk. The historic building sits in the North Monroe neighborhood just north of the Grand Rapids city center.
A popular group of local restaurants, Essence Restaurant Group, has already announced plans to open a new restaurant at the mixed-use center.
Parking Predicament
With growth comes a variety of challenges. The No. 1 issue that office tenants are currently facing and will continue to face is availability of parking.
In major cities, people are accustomed to walking to their vehicle or taking public transit. In Grand Rapids, office tenants still want parking conveniently located close to their door. This preference increases the cost of parking, but who should pay for it?
Employers are going to have to decide if this is a cost that they continue to absorb. If not, their employees may be faced with assuming this expense.
Something for Everyone
What is the draw of Grand Rapids’ CBD? The number one reason that companies are locating downtown is the ability to attract new, young talent.
There was a time when nobody wanted to linger downtown after work. Now there are people living downtown and staying after hours to enjoy all of what Michigan’s second largest city with an estimated population of 188,000 has to offer.
With the new restaurants, year-round events at the Van Andel Arena, festivals and ArtPrize (a 19-day exhibition in September that includes $560,000 in prize money and is considered the “American Idol” of the art world), there is something for everyone.
Contrary to what most people believe, it’s not just the young professionals choosing to live downtown.
We are starting to see many empty nesters move to the CBD, which has become a vibrant place among all the new development. With its numerous entertainment options, downtown is now an attractive option to live and work.
— By Mary Anne Wisinski-Rosely, SIOR, CCIM, Principal, Office Advisor, NAI Wisinski of West Michigan. This article originally appeared in the October 2015 issue of Heartland Real Estate Business.