GRAND RAPIDS — As vacancy rates remain low, experts are expecting a year of slow and steady growth in the West Michigan real estate market.
While talent issues are affecting the industrial real estate market, a report released in January by the West Michigan office of Colliers International notes that vacancy rates are decreasing in the office market, the retail sector continues to show signs of strength and communities are attempting to keep up with population growth by adding multifamily housing.
“A lot of the different markets are going to see vacancy rates continue to decrease and pricing continue to uptick a little bit,” said Mike Murray, a senior vice president at Colliers.
The biggest issue going forward remains companies’ continued struggle to find talent as West Michigan grows, he added.
“We’re so critically low in unemployment,” Murray said. “Until we get more people here who can work, construction prices will be up and retailers are going to have a hard time finding employees for their new locations.”
Here is a closer look at Colliers’ data for each of the region’s commercial real estate segments.
Even with the addition of new office space in the Warner Building and Studio Park in downtown Grand Rapids, West Michigan continues to show strong demand for office space, according to Colliers.
For all of 2019, office vacancy was below 10 percent for the first time in 30 years at 8.14 percent. As vacancy rates continue to decrease, it’s putting upward pressure on rental rates. The average rental rate is $17.12 per square foot in Grand Rapids, which Colliers expects to continue to go up.
In the report, Colliers suggests additional demand exists for new development and new construction, especially as employers continue to struggle attracting and retaining talent.
“There’s demand for new office space in a building that has a lot of amenities with it,” Murray said.
The manufacturing sector is struggling the most with prolonged labor challenges, with many companies focusing on training and development to create their own talent pipelines.
A low vacancy rate, now at 2.39 percent, continues in the industrial real estate market. However, a slowdown in manufacturing could lead to a slight increase in vacancy and more inventory becoming available.
“There were some slowdowns, but not to the point that most people are going to notice around our communities,” Murray said.
As the population grows in West Michigan, the demand for multifamily units expands along with it.
Occupancy rates continue to be high, and Colliers expects that trend to remain throughout 2020, likely resulting in rent increases.
Developers have been building new housing across West Michigan, with 1,201 new units coming online in 2019, according to Colliers. The firm estimates more than 900 new market-rate units will hit the market in 2020.
The story of West Michigan retail continues to be opposite of the national narrative.
Although retail often looks different than it did in prior years, multiple national brands have entered West Michigan recently, including Von Maur at Woodland Mall and outdoor brands like REI, Moosejaw and more.
“Grand Rapids was under-retailed for quite a while, just because we did not hit the radar of those big retailers,” Murray said. “But over the years, retailers and projects have come into the market, and we pop up on the radar of others.”
The overall retail vacancy rate is 3.17 percent, and the average rental rate is $13.89.
While retailers also have a hard time attracting talent, expansion continues with new construction in multiple retail corridors, including the areas of Knapp’s Crossing, Shops at CenterPoint and Breton Village.