Right now, Grand Rapids is in redevelopment and expansion mode. We can now, with confidence, refer to our era of recovery as a thing of the distant past. Now the key development discussions center around new construction in most of the four major commercial product types: retail, office, industrial, multi-family. Specifically in downtown Grand Rapids office and multi-family markets and the surrounding industrial markets, the demand for more real estate space is prompting many developers and construction companies to move faster in order to stay ahead of the demand curve, a result of a lack of available square footage, an increase in available capital, and a large investor pool competing for opportunities within today’s commercial real estate climate.
A recent article in MiBiz identified nearly a dozen locations - mostly surface parking lots - where residential development could expand. The grand plan is to work toward constructing thousands of units within the downtown area to pretty much double the amount of residents in the city’s core.
In an April 19th article from the same publication, a few brand-new, sizable industrial property projects were highlighted as a direct result of demand for quality space exceeding what is currently available. It was noted quality and optimal suitability are becoming drivers over lowest price.
That begs the question: How does this bottle neck of need affect lease rates?
Certainly more than just a little. Lease rates are reflecting the demand for commercial space as economic factors in Grand Rapids continue to improve. Factors like more and better jobs which foster higher wages, consumer confidence, household spending, and business investments do much to strengthen commercial real estate fundamentals. Pre-recession peaks in rates have been surpassed and should remain strong, according to the National Association of Realtors, and we have indeed seen that happen here in downtown Grand Rapids.
Another significant factor of rising rates in the West Michigan market is the consolidation of commercial real estate ownership. In the past, a potential tenant would have, for example, seven buildings from which to obtain bids, with these seven buildings owned by, say, six individual owners. Today, a few owners have amassed very large portfolios of the downtown buildings. The consequence for a tenant is decreased lease negotiation power; consolidation has fostered a landlord’s market.
We need to determine if newly constructed commercial spaces can keep pace with absorption. If key economic indicators, like oil prices, the dollar, and jobs continue their positive trends, more money will be pumped into commercial real estate, spending will continue to be strong, and businesses will be resigned to accepting higher lease rates. Still, the positive consequences of this environment for businesses include increased consumer confidence and spending.
Our West Michigan leadership, philanthropy, ingenuity, nimbleness, venture capital investment appetite, and ability to harness good ideas and opportunities will continue to be the engine which drives the Grand Rapids region and will keep us on the road to success.
Arena Place, the $45 million project, will offer 11 stories of office space, housing, and retail. Positioned next to Van Andel Arena, it adds 17,000 square feet of retail, 101 apartments, and 250 parking spaces, a testament to new development in Grand Rapids.
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One of the coolest corners in all of Grand Rapids is Union and Cherry in the Heritage Hill neighborhood. The tallest building also occupies the northwest corner: 547 Cherry Street, also most commonly known as Oakwood Manor Apartments.
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