HEARTLAND SNAPSHOT, DECEMBER 2007

Grand Rapids

A panoramic view of downtown Grand Rapids. The second skyscraper from the right is the new JW Marriot that opened this year.

Grand Rapids is a surprisingly bright spot in a state that has had its share of downturns in recent years. More than $1.3 billion in construction is underway downtown, including 450,000 square feet of medical space, residential condos, a new art museum and office expansions. The most notable downtown construction project completed recently is a $100 million, 330-room JW Marriott. It is one of three opening worldwide this year and the only one to open in the United States.

Retail leasing, although slower than in previous years, is steadily increasing, which is contributing to an overall vacancy rate of 6.9 percent. The area around Rivertown Crossing Mall continues to be the one of the most sought after areas and has the lowest vacancy rate at 4.4 percent.

A joint venture between CBL & Associates and BDR Development Company will begin construction in 2008 on Western Michigan’s first lifestyle center, a 388,000-square-foot project that will also include a residential condo component. Cabela’s is expected to announce that it will locate its second Michigan store in Walker, a northwest Grand Rapids suburb. In Muskegon, a lakeshore part of the MSA, the dominant area continues to be CBL’s Lakes Crossing Mall area. Target just opened a new store and several smaller retail strip centers have been constructed, with most reaching full occupancy.

Investment sales were very active in 2007, with many major deals coming from out-of-state investors. Most notably, the 206-acre Steelcase manufacturing campus was sold to New York-based Ashley Capital, which plans to convert the site to mixed-use, including retail, residential, restaurant and manufacturing components.

Even with some downsizing in the Western Michigan industrial market, overall vacancy rates have decreased to 9.5 percent. Much of this growth can be attributed to a combination of the expansion of local companies and a few out-of-state companies relocating their headquarters to the area. There was 750,000 square feet of construction in 2007, primarily build-to-suits for the continued growth of existing manufacturers. With limited new speculative construction and less corporate shutdowns, Grand Rapids should see a healthier and more stable industrial market in 2008.

The manufacturing sector continues to be an important part of the Grand Rapids industrial market. Due to the shifting focus to the healthcare industry, many manufacturers have begun to focus more on medical device manufacturing as opposed to the auto and furniture industries. The impact of the growing healthcare industry will continue to gain traction in our market, and we can expect to see an increased impact next year.

Modest improvement continues to be the trend in the Western Michigan office market. Vacancy rates dropped from 16.2 percent in the first quarter to 15.9 percent in the third quarter, and absorption year-to-date totals approximately 150,000 square feet. The suburban market shows nearly 40,000 square feet of positive absorption in the third quarter; however, much of that may be offset by the recent closing of mortgage companies, which is expected to contribute almost 100,000 square feet of negative absorption to the overall 2007 rate. Two of the highlights, though, include the transfer of Konica Minolta Graphic Imaging from New York to Grand Rapids, and the relocation of Michigan State’s medical school to downtown Grand Rapids from Lansing.

The downtown office market has maintained moderate occupancy rates with a slight increase in rental rates. Discussions of a new Class A tower have quieted as prospective tenants renew and extend leases in existing locations. Suburban markets remain soft, with some tenants now looking to the central business district (CBD) due to large-scale medical and hospitality development. Developers continue to struggle with available speculative office space in the suburban markets.

The rapid development and expansion of the “Medical Mile” in downtown Grand Rapids will continue through 2010, and second generation medical office space will create the next set of market challenges as landlords struggle to upgrade or reposition their assets to the market.

Muskegon is successfully redeveloping its riverfront downtown area and is seeing new businesses move in, including Siemens and Baker College, which is doubling the size of its planned culinary school.

Although the general office market remains soft in Western Michigan, we are looking forward with a positive forecast in 2008. Medical space will continue to expand. Tenants will keep looking into the CBD for general office requirements, and we foresee positive absorption due to a lack of new construction in the overall office market.

©2007 France Publications, Inc. Duplication or reproduction of this article not permitted without authorization from France Publications, Inc. For information on reprints of this article contact Barbara Sherer at (630) 554-6054.