In a typical year, around 40,000 office workers a day are in downtown Grand Rapids buying coffee or lunch, or sticking around to shop or attend an event.
For the past year, though, these office spaces have been empty or only occupied part-time as statewide COVID-19 restrictions have kept office workers home to protect public health.
Downtown Grand Rapids Inc. CEO Tim Kelly estimates that about 25 to 30 percent of office workers have returned to their downtown office space, but the steep decline has had a significant ripple effect on already struggling restaurants and retailers.
“It’s been really difficult. Even when businesses are open there’s just not the same amount of traffic,” Kelly said. “Downtowns are built on creating activity and vibrancy, so a big part for us is the office workers.”
Office spaces filling back up will help downtown restaurants and retailers, but the turning point will truly happen when events start returning, said JLL Inc. Senior Vice President Jeff Karger.
“I think restaurants will make a comeback — the ones that survive — because there has been a lot of pent-up demand and people really miss the experience of going out to dinner,” Karger said.
Despite businesses struggling with less foot traffic and operating within COVID-19 restrictions, downtown Grand Rapids has seen a net positive of three businesses that have opened downtown since March 2020, Kelly said. Twenty ground-floor businesses closed since the pandemic hit, and 23 opened in that same timeframe — close to what DGRI sees in a typical year, he said.
Loosening restrictions
As some venues and indoor dining reopen at limited capacity under COVID-19 restrictions, in-person office work is still restricted. Employers are mandated by the state to create a policy “prohibiting in-person work for employees to the extent that their work activities can feasibly be completed remotely.”
The office restrictions stem from a Michigan Occupational Safety and Health Administration emergency order that started Oct. 14 and lasts through April 14. Business groups across Michigan have recently called for loosened restrictions on office space, which Gov. Gretchen Whitmer has said could begin soon.
On Feb. 23, business groups across the state — including the Grand Rapids Area Chamber of Commerce — signed a joint letter asking Whitmer to allow businesses more in-person work while still following safety protocols.
“From Grand Rapids to Lansing and Detroit, empty office buildings have a damaging impact not only on productivity, innovation, collaboration and mental health but also has put an incredible strain on our communities,” according to the letter.
The groups say that the city of Grand Rapids is projecting a $15 million to $20 million budget shortfall from lost local income tax revenue as non-city residents work from home.
Making payments, long-term outlook
West Michigan office space occupancy hasn’t changed much so far since the third quarter of 2020, Karger said, though he added that more sublease space is on the market in downtown and suburban areas than in prior years.
“We’re still seeing a few groups doing short-term (lease) extensions for one or two years as they figure out their occupancies,” Karger said. “Although everyone (downtown) seems to be paying their rent, they are not back to work yet. We won’t see people making their way back to work” until the third quarter.
Also, an anticipated rise in companies defaulting on loans for office buildings has not come to fruition, he added.
“That has not been the case,” Karger said. “People have been making payments and banks are working with clients. However, larger institutional clients are looking to sell properties.”
Vaccine rollout will have a big effect on the office market and when people come back to in-person work, Karger said. Long-term effects on the office market will likely not be seen until the third or fourth quarter, he added.
“For my clients that I talk to, it is a case-by-case basis,” Karger said. “Some have real good success in remote working, others not so much. It just depends on the task at hand.”
Kelly still sees office space playing a big role in the downtown economy, especially with Perrigo Co. plc and Acrisure LLC moving their headquarters downtown.
“As we think about talent attraction and talent shortages, employers need to have a unique experience that attracts talent,” Kelly said. “That will continue to be the case and likely be more so in the future.”
Companies have generally recognized that work can continue in a hybrid form of office- and home-based settings, which may lead to right-sizing considerations for needed office space, said Jeffrey Tucker, senior managing director of brokerage and principal at Bradley Co.
In general, office needs are going to vary by industry, he said.
“At the same time as the hybrid model is being tested, the value of in-person collaboration is also being measured, and that will be valued based on industry and how internal and external service can be accomplished,” Tucker said.
Though the degree to which offices fill back up with workers full-time is unclear, the pandemic has been a learning opportunity on the value of in-person work, Kelly said.
“Whether it’s from the cultural standpoint, onboarding or attracting new employees — that in-person connection piece is still huge,” Kelly said. “Virtual work will be a part of work going forward, but I don’t think it will replace
in-person.”
