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Market IndicatorsRelative to prior period
CBD/Downtown Q3 2016
CBD/ DowntownQ4 2016*
Suburban Q3 2016
Suburban Q4 2016*
VACANCY
NET ABSORPTION
CONSTRUCTION
RENTAL RATE Note: Construction is the change in Under Construction. *Projected
New Medical Construction Highlights Market Activity
Research & Forecast Report
WEST MICHIGAN | OFFICEQ3 2016
Executive SummaryWest Michigan’s economy has shown resilience through 2016 despite many experts cautioning to temper expectations. Year-to-date, jobs have been added in most industry sectors and unemployment is now hovering around a healthy 4% in West Michigan, with the Grand Rapids-Wyoming MSA near 3%. The professional and business services, education and healthcare, and the up-and-coming information sectors all saw modest gains over the summer. Those trends translated into positive results for the office real estate market. The market is now one quarter away from the six-year anniversary of the last time it saw a negative quarterly absorption figure. In addition, the prevalence of new residential development reaffirms the momentum that the area currently has on attracting companies and talent.
DowntownThe completion of the downtown mixed-use development Arena Place brought excitement to the area earlier this year, and currently only one suite remains available. Companies like Meritage Hospitality Group, Insight Global and law firm Miller Johnson have all signed leases and are now moved in. The quick tenancy of this high-profile building reaffirmed that we have not yet reached the ceiling for amenity-rich office space in prime locations. Subsequently, the Central Business District (CBD) Class-A average listed rate grew 6.56% to $22.74 per square foot (Modified Gross). New downtown development project 234 Market has a market-high listed rate of $23.50 (NNN), which after being normalized for rate type equates to $28.75 per square foot (Modified Gross). The building will add 30,000 square feet of
rentable office space to the market inventory and will include retail space and market-rate apartments.
Combined Downtown/CBD vacancy now sits at 9.56% after 28,980 square feet of positive net absorption over the quarter. Key tenants moving in and out of downtown included the aforementioned relocation of Meritage Hospitality Group from Eaglecrest Office Park on East Beltline Avenue NE to Arena Place, and Kalamazoo-based Greenleaf Trust filling the final vacancy at the recently renovated 25 Ottawa Avenue SW. OnSite
Jeff Hainer Senior Research AnalystGlen Gerwatowski Assistant Research AnalystThe information contained herein is collected and analyzed by the Colliers International | West Michigan Research Department.
2 West Michigan Research & Forecast Report | Q3 2016 | Office | Colliers International
Wellness vacated their space downtown at 100 Grandville Avenue SW to relocate to 3020 Charlevoix Drive SE, citing increasing parking concerns downtown. Additionally, the exodus of Harvey Kruse, P.C. from 60 Monroe Center Street NW, relocating to Eaglecrest Office Park, created a new 5,800 square foot hole downtown.
Plans for the sale and redevelopment of the 172,000 square foot vacant Keeler Building at 56 N. Division Avenue dissolved after the two sides couldn’t reach an agreement. Also, CWD Real Estate Investment formally announced the purchase of the two-building Fifth Third Center, located between Ottawa and Monroe Avenues downtown. Sale terms were undisclosed.
SuburbanRecently we have noted that suburban office building owners are under increasing pressure to upgrade their facilities to retain and attract tenants. Due to minimal progress on this front, users are looking to find opportunities to own versus lease. This has manifested in both land purchases for new construction, as well as purchasing the building they are renting. This has been very evident with medical users, who are finding that landlords are unwilling to upgrade second and third generation medical space to meet current needs.
“We are seeing an increase in activity from medical users, specifically in the dentistry field, that are acquiring land and starting the process of becoming owners versus tenants in the suburban office market,” said office advisor Gary Albrecht. “Lack of quality inventory and location are the primary driving factors for these medical professionals.”
Gaines Pediatric Dentistry recently purchased a parcel of land on Wilson Avenue SW to build a new office; ABC Pediatrics did the same on 56th Street SW, with plans to expand from 1,800 square feet to 8,000 square feet; and Gillis Family Chiropractic is building a new facility at 5675 Burlingame Avenue SW, relocating from 1845 R W Berends Drive SW in Wyoming. In total, we are tracking 10 new under-construction office projects in the suburbs, totaling more than 107,000 square feet. These 10 projects will include 12,500 square feet of vacant space needing to be filled, but will represent more than 95,000 square feet of new occupied space coming online. Users moving into these new buildings will be leaving behind approximately
- Continued on page 4
Source: Research Department, Colliers International | West Michigan
Vacancy Rate
Class A Class B
1Q13
2Q14
3Q15
2Q13
3Q14
4Q15
3Q13
4Q14
1Q16
4Q13
1Q15
2Q16
1Q14
2Q15
3Q16
Class C
Southeast Corridor Activity
Vacancy Rate by Class25%
20%
15%
10%
5%
0%
600
550
500
450
400
350
300
250
200
150
100
50
0
-50
70
60
50
40
30
20
10
0
29%
25%
21%
17%
13%
9%
5%
3Q13 1Q14 3Q14 1Q15 3Q15 1Q16 3Q16
Downtown
Greater Downtown Suburban
Suburban
Combined
4 Quarter Moving AverageAbsorption
Quarterly Absorption
Squa
re F
eet
10.2%11.2%
9.4%
17.7%
8.8%
20.0%
1Q16 2Q16 3Q16
60%
50%
40%
30%
20%
10%
0%
Sales
Leases
TOTAL
% of Total
8
57
65
36%
12
54
66
31%
14
50
64
35%
36%
31%35%
Market Activity
3 West Michigan Research & Forecast Report | Q3 2016 | Office | Colliers International
Past statistics are subject to quarterly adjustments to improve accuracy going forward.
Office Market Statistics
SUBMARKET NUMBER OF BUILDINGS
EXISTING INVENTORY
(SF)VACANCY (SF) VACANCY RATE OCCUPIED SPACE
(SF)NET ABSORPTION
Q3 2016 (SF)
Q2 2016 WEIGHTED AVG
ASKING RATE
Q3 2016 WEIGHTED AVG
ASKING RATE
GREATER DOWNTOWNCBD 60 3,707,025 373,694 10.08% 3,333,331 28,569 $20.79 $19.17
Downtown 35 1,856,755 158,322 8.53% 1,698,433 411 $16.68 $19.56
SUBURBANAirport Area 22 805,096 252,545 31.37% 552,551 1,280 $12.05 $13.33
Burton/Breton 32 682,008 190,739 27.97% 491,269 -6,586 $14.30 $12.95
Cascade 95 2,066,780 365,061 17.66% 1,701,719 -4,485 $15.39 $13.17
Centennial Park 33 1,034,555 208,778 20.18% 825,777 330 $15.17 $13.55
E Beltline Corridor 59 1,375,662 203,894 14.82% 1,171,768 718 $15.68 $14.04
E Paris Corridor 59 1,652,691 134,632 8.15% 1,518,059 33,250 $16.68 $16.65
Northeast 46 616,391 105,348 17.09% 511,043 1,145 $14.96 $15.27
Northwest 60 779,788 173,174 22.21% 606,614 5,272 $14.34 $12.50
Southeast 97 2,249,854 424,072 18.85% 1,825,782 22,800 $11.95 $11.57
Southwest 99 1,896,917 277,798 14.64% 1,619,119 -3,895 $15.97 $13.72
MARKET TOTALS 697 18,723,522 2,868,057 15.32% 15,855,465 78,809 $15.92 $14.74
Leasing Activity Property Name Size (SF) Tenant City
4690 Fulton Street East 5,000 Stifel Ada
333 Bridge Street NW 3,132 Robert Half International
Grand Rapids
765 Marway NW 2,375 Carpenter Brothers
Grand Rapids
3210 Eagle Run Drive NE 2,271 The Thieme Law Firm
Grand Rapids
4070 Lake Drive SE 1,419Oculoplastic
Associates of West Michigan
Grand Rapids
7740 Byron Center Avenue SW
333 Bridge Street NW
Sale Activity Property Name Size (SF) Sale Price City
4095 Park E Court SE 10,159 $850,000 Grand Rapids
7740 Byron Center Avenue SW 9,717 $1,125,034 Byron
Center
1142 44th Street SE 9,432 $390,013 Grand Rapids
436 44th Street SE 9,120 640,000 Grand Rapids
532 Ottawa Avenue NW 6,568 487,500 Grand Rapids
30,000 square feet of previously occupied space. These projects alone will account for 52,500 square feet of net absorption, once all completed.
Additionally, Phase II of Heritage Pointe on East Paris was completed in the third quarter, totaling 42,792 square feet. The development adds to a corridor which has been called “Medical Mile East,” in reference to the medical-heavy Michigan Street downtown. The Phase II building is 75% leased to medical users, with the anticipation that the balance will quickly be committed.
The total suburban office market saw 49,829 square feet of absorption in the third quarter, bringing vacancy down to 17.75%, with a current average listed rate of $13.55 per square foot (Modified Gross). True market value for many of the competitive buildings in the suburbs are a bit higher than this; however, much of what is on the market are buildings with deferred maintenance, as previously mentioned.
A Look Ahead » As forecast last quarter, suburban construction will continue to grow
as users look to own their own building rather than wait for landlords to modernize their facilities.
» Listed rental rates downtown inched lower, as large blocks of space at 975 Ottawa Avenue NW and 25 S. Division Avenue were reduced in price. However, marquee buildings and new developments should push the top end of the spectrum even higher in the fourth quarter and into 2017.
» “Office envy” will entice tenants in Class B or C space to finally take the plunge to upgrade, as they see and hear about the amenities and finishes in some of the new office spaces that colleagues are in around the city.
» The Keeler Building remains one of the few properties downtown available for rehab.
4
Copyright © 2015 Colliers International.The information contained herein has been obtained from sources deemed reliable. While every reasonable effort has been made to ensure its accuracy, we cannot guarantee it. No responsibility is assumed for any inaccuracies. Readers are encouraged to consult their professional advisors prior to acting on any of the material contained in this report.
Colliers International | West Michigan333 Bridge Street NW, Suite 1200 Grand Rapids, MI 49504+1 616 774 3500www.colliers.com/westmichigan
Offices located in 66 countries on
6 continents$2.5 billion in annual revenue
2 billion square feet under management
WEST MICHIGAN OFFICE TEAMFOR MORE INFORMATIONJeff HainerSenior Research AnalystDIR +1 616 988 [email protected]
Glen GerwatowskiAssistant Research AnalystDIR +1 616 988 [email protected]
Gary AlbrechtSenior AssociateDIR 616 242 [email protected]
Tom DeBoer SIOR, CCIMSenior Vice PresidentDIR 616 988 [email protected]
Kris DePreePresident | HollandDIR 616 355 [email protected]
Deb MiddletonExecutive AssistantDIR 616 988 [email protected]
Scott Morgan JDSenior Vice PresidentDIR 616 988 [email protected]
Gabe AuduAssociateDIR 616 242 [email protected]
Jason Webb CCIMAssociate Vice PresidentDIR 616 988 [email protected]
David WienerSenior Vice PresidentDIR 616 988 [email protected]
Sam DeVriesAssociateDIR 616 242 [email protected]
The Keeler Building
