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Sunday, 18 January 2015 11:02

Tightening building inventory drives new construction activity across Grand Rapids

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Commercial real estate brokers are concerned about an overall lack of inventory across all sectors at the start of 2015.

The West Michigan office of Colliers International presented its 15th annual Economic and Commercial Real Estate Forecast at DeVos Place in downtown Grand Rapids. The recurring theme of the presentations at the event, held last Friday: The lack of inventory will go a long way toward pushing firms to new construction, according to Colliers executives.

“The shortage of high-quality industrial space was going to be an issue moving forward, and that certainly was the issue in 2014,” said Duke Suwyn, president and CEO of Collier’s West Michigan office. “In order to meet the  demands of the market, you had to get creative to find solutions to meet the needs of these high-quality users."

However, industrial buildings that can be split up or modified to meet the needs of heavy manufacturing are in short supply. That is leading to a push for new speculative buildings.

Suwyn pointed to two new projects that will be fully absorbed upon completion.

Currently, there’s a 45,000-square-foot facility going up near the Gerald R. Ford International Airport that will be expandable to about 80,000 square feet. There is also a 50,000-square-foot building beginning construction in the coming weeks at Broadmoor Avenue and 36th Street that can be expanded up to 200,000 square feet or more, he added.

The developers of the projects were not disclosed.

This dynamic of tight supply leading to new construction is hardly limited to the industrial space. Retail, office and multifamily housing are all going through the same cycle, Suwyn said.

“The redevelopment of existing facilities is a common theme across all sectors,” he said, adding that for the last couple of years, developers have been busy doing rehabilitation projects on older properties. “We don’t really have any more distressed properties.”

In the retail and office sectors, particularly for Class A locations, the current trend is what Suwyn called a “monumental shift” where the best and cheapest lease price is no longer the most important aspect for tenants. Rather, tenants are looking more for the best space for their companies.

In the retail space, this is evident in the premier corridors of the Grand Rapids area: Rivertown, 28th Street SE near Centerpointe Mall, and Alpine Avenue north of I-96.

Those areas are seeing the greatest amount of investment and an influx of new retailers, said Mark Ansara, a Colliers associate who focuses on retail. Ansara said that Colliers expects the East Beltline corridor around Knapp’s Corner and Celebration Village to be the next major area for retail in the greater Grand Rapids area.

The tightening of inventory can also be felt in the office space. According to Colliers’ data, the third quarter of 2014 marked the 15th consecutive quarter of positive absorption in the office market for West Michigan.

Occupancy rates in the central business district and downtown areas are hovering around 85 percent. The East Beltline and East Paris suburban corridors are higher, with East Paris getting to almost 90 percent, the company said. That’s also where construction and development firm First Companies Inc. is building three new office buildings, located near the corner of East Paris and Burton Street.

In December, CWD Real Estate Investment announced its purchase of 250 Monroe Avenue — also known as the Calder Plaza Building — on the north end of the central business district in downtown Grand Rapids. The building had fallen out of favor with tenants, largely because it lacked modern amenities such as a fitness center, said David Wiener, a principal with Colliers’ office brokerage division.

CWD is currently in the process of developing plans to renovate the building, the company said in a statement at the time of purchase.

The largest driver of construction and development growth, however, comes from multifamily housing, particularly in urban areas. The demand for apartments in Grand Rapids is pushing the borders of the city’s downtown into new neighborhoods, Suwyn said.

As evidence, Suwyn pointed to a number of mostly mixed-use projects that are currently underway in and around downtown Grand Rapids. From Rockford Construction’s redevelopment of Morton House to the recently announced CWD project at Olds Manor to Franklin Partners’ redevelopment of 25 Ottawa Avenue SW, the supply of vacant buildings left to renovate has effectively been depleted, sources said.

That trend has led to developers building new projects such as Orion Construction’s current development of Arena Place, a mixed-use new construction project that will consist of market rate apartments, Class A office space and ground-floor retail and restaurant space. The company also has plans for a parking deck as part of the development, which is expected to be open completed later this year.

In a panel discussion at the event, Rockford Development Kurt Hassberger and Orion’s John Wheeler spoke about the appetite for apartments in Grand Rapids.

“The demand right now seems to be limitless,” Hassberger said, adding that the anticipated raising of interest rates from the current existing lows at some time in the next year or two will eventually slow growth down.

Wheeler agreed with that assessment.

“Two points (higher) on interest rates, and I’m not going to do these projects,” Wheeler said. 

Read 5409 times Last modified on Sunday, 18 January 2015 11:38

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