HEARTLAND SNAPSHOT, JULY 2006

Grand Rapids, Michigan, Office Market

The office market in Grand Rapids, Michigan, has shown slight signs of improvement. The net absorption rate has been positive. We are beginning to see the development of speculative office space centered on the medical industry. The increasing demand for medical space in Grand Rapids has initiated large development projects that the area has not seen in years. Also, the downtown market has seen an influx in activity in the residential condominium market. Many significant landmarks are being converted to residential condos and have sub- sequentially eaten away at the office vacancy rates.

The downtown office market has seen major developments in the Spectrum Health/Michigan Hill area, headlined by the Spectrum Health Medical Tower (700,000 square feet) and Mid Towne Village (200,000 square feet). Women’s Health of West Michigan has purchased a lot in Mid Towne Village and is set to begin construction on a 100,000-square-foot medical facility. In addition, Van Andel Institute, Spectrum Health and Saint Mary’s Hospital are all making large capital investments in their facilities. The Riverfront Building is also in the midst a large addition (50,000 square feet) to accommodate the growing business of Crowe Chizek. Next door to the Riverfront Building, a 24-Story, 340-room J.W. Marriot Marquee is under construction. Grand Rapids has also committed to sell a parcel of land in the heart of the city to Second Story Properties and RSC Associates for a mixed-use project at the former City Center Parking Ramp lot. The plans call for a mix of residential condos, office space and retail space, as well as a parking structure.

The southeastern quadrant of the market has experienced a surge development activity of late. An 80,000-square-foot, Class A medical building has broken ground at the Harley Medical Park, and Third Coast Development has broken ground on a 60,000-square-foot office building that will serve as the corporate headquarters for Hart & Cooley, which is relocating from its facility in Holland, Michigan. We have also seen recent redevelopment activity in Centennial Park. First Companies has received approval for and is set to begin construction on a 70,000-square-foot office building near the MVP Sports Complex.

Most of the development activity in Grand Rapids’ southwestern quadrant is centered on the completion of the Metropolitan Hospital complex. In addition, both Saint Mary’s and Spectrum Health are making their presence felt through large capital investments in new facilities in the area.

Space Source Inc. of Holland has made a big splash in the downtown market by purchasing three buildings. The company is in the process of redeveloping the Founder’s Trust building into Class A office space, where the company will establish its Grand Rapids headquarters. The highlight of the acquisitions is the 10-story, 144,000-square-foot National City Building. The city of Grand Rapids is also putting 19 acres of riverfront property on the market; this available property has attracted the attention of numerous national developers.

Class A office rental rates in the Grand Rapids market are in the range of $17 to $24 per square foot on a gross basis. The vacancy rates in the central business district are in the range of 18 to 19 percent. This is in line with the overall vacancy for the greater Grand Rapids area. The vacancy rates in the southeast and southwest submarkets range from 14 to 17 percent, while the northeast quadrant is sluggish and in the mid-20s.

The strongest corridor to keep an eye on is the Michigan Hill area. The medical development in this area is strong and shows no indication of slowing down.

— Jeffrey W. Karger is a sales associate with S.J. Wisinski & Company in Grand Rapids, Michigan.



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