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Sunday, 16 February 2014 22:24

Colliers report: Commercial real estate market to heat up through midyear

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Thanks to strong job growth and shrinking inventory in a number of asset classes, commercial real estate brokers in West Michigan expect growth through the first half of 2014.

One key indicator of activity, land sale transaction volumes, jumped 51 percent since 2010 in West Michigan because of new development and construction, according to a recent report from the Colliers International Grand Rapids office.

The West Michigan market in 2013 had transaction volumes equaling, if not exceeding, the most recent peak in 2007, said Colin Kraay, investment principal with the firm.

“(The volume increase) wasn’t just offices or industrial, it was across the board for all asset types,” he said.

On top of those positives, the Grand Rapids multi-family housing market is likely one of the best-performing markets in the country, he said, and that’s helping drive additional investment for the start of 2014.

The driver for all that multi-family development: Overall occupancy rates are higher than 98 percent and have stayed that way for nearly 13 consecutive quarters, Kraay said.

“In 2007 when you looked across the skyline and saw all the cranes, most of that construction was either institutional or (health care) related,” he said. “You look across the town now (and the construction) is all apartments and multi-family.”

Even with the high occupancy, rental rates are still in the bottom third when compared with similar national markets, making it accessible and relatively inexpensive for people to live in the area, he said.

But there’s good news for property owners too, according to the Colliers report: Rental rates for all property types are on the rise. In the main retail corridors, landlords are getting rates that are approaching the pre-recession price range of $20 per square foot to $26 per square foot, the report stated. Rental rates for new retail construction are higher, in some cases exceeding $30 per square foot.

While activity in the commercial real estate market as measured by square footage is expected to dip slightly in 2014, sale and lease transactions in the office market are still expected to account for more than 1.5 million square feet, according to Colliers.

The office market continues a slow expansion in the Grand Rapids area. For example, Rockford Construction Co. and Haworth Inc. partnered to open Blue35, which offers high-tech offices and co-working space at the renovated Mertens Hotel property at 35 Oakes Street in downtown Grand Rapids. Additionally, a new 24,000-square-foot Class A building at 4362 Cascade Road is one of first partially speculative office developments to hit the suburban market in the last five years, the Colliers report noted.

More construction activity could be on the horizon this year as well, said Dave Wiener, office broker for Colliers, who wouldn’t be surprised if new office projects are announced in the coming year.

The investor market is again starting to accelerate in the region, he said.

“We’re having investors specifically ask us to find buildings to buy in downtown Grand Rapids,” Wiener said. “They want to make an investment in Grand Rapids, whether they (the buildings) are listed or not listed.”

Franklin Partners LLC’s purchase of Arena Station at 25 Ottawa Avenue in downtown Grand Rapids is one example of a developer making a successful offer on an unlisted property.

Wiener said developers have also started to invest in building renovations as tenants look to upgrade their offices. He recently toured eight properties with a prospective tenant looking for 8,000 square feet of space, and all but two of the buildings had some form of renovation project going on, he said.

Many tenants are looking to trade up to a nicer building and are willing to pay more for it, Wiener said.

“Tenants are looking for that top-quality space and property owners are recognizing that and making these improvements and adding amenities,” he said. “At the same time, these new property owners are raising the rental rates, and the tenants don’t seem to mind.”

Read 3546 times Last modified on Sunday, 16 February 2014 18:27

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