With the exception of a shaky office market, business leaders in West Michigan are reporting largely healthy downtown city centers with increased visitors, an influx of businesses opening and new projects under construction.
In downtown Grand Rapids, more stores have opened and visitor traffic has increased over the past year, but people still need to return to offices to work in-person for downtown retail to fully take off, said Mark Ansara, managing principal and senior vice president of Advantage Commercial Real Estate.
Right now, downtown Grand Rapids’ retail market is being driven by “dinners and weekends,” Ansara said.
Sam Cummings, managing partner at Grand Rapids-based CWD Real Estate Investment LLC, one of the largest property owners and office landlords in the downtown market, echoed Ansara’s comments.
“If we are going to return to a fully vibrant downtown, we have to return to consistent vibrancy throughout the week, which means we need people to return to the office,” Cummings said.
Nationwide, central business districts continue to grapple with similar challenges, particularly since amenities like restaurants and public transportation that made downtowns attractive to office workers have decreased since the start of the pandemic. That’s according to Arpit Gupta, associate professor at the New York University Stern School of Business, who spoke during a Feb. 8 webinar put on by the U.S. Chamber of Commerce Foundation to discuss how remote work is affecting cities.
“Suburbs are seeing a lot of success in second-tier cities and in the suburbs of large cities,” Gupta said. “Suburbs are more attractive than the center cities, which is an added challenge to getting people back in (downtown) offices.”
The suburban office market around Grand Rapids is proving to be more resilient than the downtown office market, according to the latest commercial real estate data.
The overall office vacancy rate in Grand Rapids increased year-over-year from 6.3 percent to 8 percent, according to the NAI Wisinski of West Michigan 2022 fourth quarter office market report. The highest vacancy rates in Grand Rapids for the fourth quarter were in downtown (9.1 percent) and the southeast side of the city (9 percent). The office market on the northwest side of the city fared the best, with a vacancy rate of 4.6 percent.
Companies that initially looked at downtown office spaces are increasingly turning to suburban neighborhoods instead, where brokers are seeing “good activity,” said Gary Albrecht, principal and senior vice president of Advantage Commercial Real Estate.
“There are some companies that have grown and need more office space,” Albrecht said. “Some of the larger companies that have an office space in Grand Rapids as a tertiary market, they don’t necessarily need an office downtown anymore so they’re looking at suburban space and downsizing.”
The availability and expense of downtown parking also is pushing companies to consider the suburbs for office space, according to sources contacted for this report. That issue has been compounded by the city of Grand Rapids nearly doubling the cost of daytime parking at downtown city parking ramps in January to a maximum daily rate of $24.
Positive signs emerge
In one signal that the fates of downtown business districts could be improving, average weekly office occupancy as of Jan. 25 in the top 10 U.S. cities was 50.4 percent, the highest since March 2020, according to a survey from security firm Kastle Systems.
However, about one-third of firms globally have indicated they plan to downsize their office space, said Mark Grinis, global real estate, hospitality and construction leader at Ernst & Young (EY), who also spoke during the U.S. Chamber webinar. About two-thirds of companies surveyed by EY also indicated that they plan to make investments in their office spaces, which means they are upgrading amenities and sometimes expanding the space, Grinis said.
When asked about his predictions for the future of office work five years from now, Grinis said he expects “the natural supply and demand will pull back office construction, which will allow it to equalize.” The market will balance itself out and recover by then, he added.
“What you have to look at is startups and new companies are overwhelmingly choosing to start working remotely first,” NYU’s Gupta said. “They get to rethink the whole equation because they can start from scratch.”
‘Better than we thought’
While the office market is “still evolving,” 2022 visitor traffic and hotel stays were up in downtown Grand Rapids in 2022 compared to previous years, said Tim Kelly, president and CEO of Downtown Grand Rapids Inc. As well, Kelly said more than 10,000 people came downtown in early January for the first weekend of the World of Winter Festival, which features public art displays and live performances.
“If you went back in time to March 2020, we feel like we fared better than we thought we would, and the data we track continues to turn in the right direction,” Kelly said. “Overall, we feel like things are improving.”
Throughout 2022, 19 businesses closed in downtown Grand Rapids, but 30 new businesses opened, according to DGRI data.
Residential activity in downtown Grand Rapids has been really strong, with 97 percent of downtown units leased out, almost 200 units under construction and 1,500 units in the pipeline, Kelly said.
Despite the shortcomings in the downtown office market, CWD’s downtown properties have remained steady, with retail being a bright spot, Cummings said.
“Overall, the story is that our downtown is in pretty good shape,” Cummings said. “I would rather be in Grand Rapids than almost anywhere else relative to our market. We still have work to do.”
Mixed results on the lakeshore
A similar scenario is playing out on the lakeshore, where merchants in downtown Holland reported that business last summer was their best year yet, said Amy Sasamoto, the city’s Downtown Development Authority coordinator. Market Zero was the only storefront to close in 2022 that was not related to a business owner retiring, she said.
“Activity downtown is up overall,” said Doug DeKock, co-owner of GDK Construction Co., a major landlord in downtown Holland. “The theater is doing significantly better, which was really slowed down because of COVID-19. We had a couple storefronts that went vacant, but we’ve been able to lease them up almost immediately. We’ve had good demand.”
Developers also are planning more residential units for downtown Holland. The Towers on River development is nearing completion and will bring 27 luxury condominiums and a 21-unit senior living development to market at 159 S. River Ave.
Further north in Muskegon, the retail downtown is “still a challenge,” but the VanDyk Mortgage Convention Center opening in April 2021 fueled the openings of some restaurants and storefronts, said Muskegon County Community Director Bob Lukens.
A slew of developments remain in the works in and around downtown Muskegon, including the Harbor 31 project, Adelaide Pointe project and the redevelopment of the former Shaw-Walker facility. Combined, the three projects amount to nearly $600 million in investment and could add more than 1,200 housing units to Muskegon.
“We had a strong summer here in Muskegon,” Lukens said. “The weather cooperated and we had our best year ever as far as accommodations taxes collected, which is kind of the barometer we use to see how our season compares to past years.”
EDITOR’S NOTE: This story has been updated from its previous version.