The retail sector of West Michigan’s commercial real estate market is seeing heavy activity despite many business owners struggling to stay fully staffed.
Local real estate brokers attribute the high level of activity partly to pent-up demand from consumers and deals being put on hold in 2020 because of the pandemic, as well as the high cost of new construction putting existing space in higher demand.
The overall retail vacancy rate in the Grand Rapids area at the end of the second quarter was at 5.21 percent, according to a Q2 market trend report from Colliers International’s West Michigan office. Vacancy rates along key corridors ranged from less than 1 percent along East Beltline Avenue to 5.5 percent along 28th Street Southeast, with rates along 28th Street Southwest, Alpine Avenue, Plainfield/Northland Drive and Rivertown Parkway falling in between.
Recent multi-million-dollar property sales of two shopping centers — Alpine Summit Shopping Center in Walker, as well as 4901 28th St. SE, which houses Total Wine & More and Bed Bath & Beyond — are examples of the importance of having a good location as well as quality, national tenants, said Mark Ansara, managing principal at Advantage Commercial Real Estate.
“A lot of the money flowing in is coming from buyers looking for shopping centers that are full or nearly full and well-positioned,” Ansara said. “Even if they may be paying a bigger price for it, in the long run it is usually worth it if they have long-term leases in place with high quality retailers.”
‘Steady all summer’
The 136,942-square-foot Alpine Summit Shopping Center at 3165 Alpine Ave. in Walker was purchased this month for nearly $17.9 million by Asia Automotive America Inc., which is registered to Myeoung Hyun Lee under a Pontiac address. The sale was represented by NAI Wisinski of West Michigan. The shopping center is fully occupied with tenants that include Ulta, HomeGoods, Marshalls, Petco, Party City, CATO, Sola Salons, America’s Bride and ABC Warehouse.
The south end of the Alpine Summit Shopping Center includes room for an addition, current tenants have long-term leases, and all but one tenant is a national company, said Bill Tyson, partner at NAI Wisinski of West Michigan.
“Typically retail slows down in July and August and picks up in September before it slows down for the holidays, but it’s been steady all summer,” Tyson said. “It’s pent-up demand and people are ready to move forward with in-person activities. I think this trend is going to stay on pace, but it depends on what happens with the pandemic and if there are additional restrictions.”
Edmark IV LLC sold the shopping center located at 4901 28th St. SE in Cascade Township for $10 million on Aug. 12 to Bell Road Lodge LLC. With national retailer Total Wine & More as well as Bed Bath & Beyond, the shopping center had successful retail tenants in a high-traffic area, Tyson said.
Asking rates increasing
The weighted average asking rate for retail space in the Grand Rapids area was on an upward trajectory in the second quarter of 2021, with overall Class A asking lease rates at $14.82 per square foot. Most major retail corridors in the area saw increased asking rates except for the Alpine Avenue and East Beltline corridors.
One of the biggest reuses of vacant retail space is by higher education and gyms such as Planet Fitness, said Bill Bussey, senior associate broker at Bradley Co. Investors are “picking up bargains” on retail spaces and Class A shopping centers, with some being priced cheaper than they were compared to last year, Bussey added.
While it’s a buyer’s market for investors looking at Class A properties in high quality shopping centers, Class B and C properties are seeing more activity and are filling up more than usual because of the overall demand for retail space, Bussey added.
“Subject to COVID, you’ll see more and more people going to the stores and people out shopping,” Bussey said. “It’s not like retail brick and mortar is going to crash and go away.”
Consumers’ appetite for shopping in-person has also been increasing. U.S. retail and food services sales for August were $618.7 billion, a 0.7-percent increase from the previous month, according U.S. Census data.
“Despite the Delta variant, consumers are doing their best to go about their lives,” JLL President of Retail Advisory Services Naveen Jaggi said in a statement. “The increase in vaccinations and re-openings is motivating shoppers to return to their local retailers, creating a demand for retail space past pre-pandemic levels.”
Despite the more positive state of retail than was expected, most new openings will be put on pause until the first quarter of 2022, Ansara said, as businesses that are planning to be ready for the 2021 holiday shopping season have mostly already opened.
“Most stores make 40-45 percent of their sales in the last four months of the year,” Ansara said. “A lot of these national retailers go dark in November and December because they don’t want to put new stores together, but instead will focus on building up existing stores.”
Meanwhile, the biggest hurdle for the retail commercial real estate market continues to be business owners, especially restaurants, struggling to adequately staff their business, Ansara said.
“The only thing we’re hearing right now that is constant and will continue to be constant is the labor market, especially in food service. It is very difficult to get not just good people, but just people to continue to work in that field,” Ansara said. “You see a lot of local restaurants not open for lunch because they don’t have the labor.”