‘the pyramid’ now on the market while development...
TRANSCRIPT
‘The Pyramid’ Now On The Market While Development Continues Downtown
Research & Forecast Report
WEST MICHIGAN | OFFICEQ2 2015
Executive SummaryWest Michigan continues to impress economists and the media alike, collecting yet another accolade in the second quarter to rank as the third best overall economy in the nation – trailing only Denver and Houston. The Grand Rapids-Wyoming metropolitan statistical area (MSA) now competes with the largest MSA’s in the nation, and according to the Area Development publication, has “invested in itself to create a skilled workforce and a pro-business environment.” The MSA currently has an unemployment rate of 4.2%, compared to 5.5% for the state and 5.3% for the country.
Forbes also ranked Grand Rapids the number two city in the nation for finding a job in the second quarter. The automotive, consumer goods, health care, manufacturing and food industries were listed as the top sectors for job growth in the area.
The West Michigan office market continues its streak of consecutive quarters of net absorbed space, now totaling 18 quarters in a row. One major property introduced to the competitive inventory is the 516,305 square-foot former Steelcase Pyramid building in southern Kent County, which was built by the company in 1989. The former headquarters was sold to an out-of-state investor and is now being marketed for a new tenant.
Space
The downtown office market saw 132,546 square feet absorbed in the second quarter, with notable transactions of Spectrum Health expanding its footprint within Bridgewater Place and KPMG entering the market by moving into 18,118 square feet at 99 Monroe. The vacancy rate downtown now stands at 11.6%, an improvement of more than 300 basis points from last quarter.
Dave Shafer Research Director | West MichiganJeff Hainer Research Analyst | West Michigan
Market IndicatorsRelative to prior period
CBD/Downtown Q2 2015
CBD/DowntownQ3 2015*
Suburban Q2 2015
Suburban Q3 2015*
VACANCY
NET ABSORPTION
CONSTRUCTION
RENTAL RATE** Note: Construction is the change in Under Construction. *Projected
Vacancy Rate
Source: Research Department, Colliers International | West Michigan
2 West Michigan Research & Forecast Report | Q2 2015 | Office | Colliers International
The suburban market experienced 24,658 square feet of positive absorption in the second quarter, with 10,953 square feet of that coming from the Northeast submarket. The suburban vacancy rate rose to 22.9% despite positive absorption due to The Pyramid now being tracked as competitive space. Without The Pyramid being added to our statistics, the suburban vacancy rate would stand at 19.7%. The East Paris corridor continues to lead all submarkets with only 10.5% of vacancy.
Development
Arena Place continues its construction at 45 Ottawa Avenue with an estimated delivery date of February 2016. Twelve Weston is another new 150,000 square-foot mixed-use development planned downtown, which will feature retail space on the ground level with office space above and parking attached. Additionally, 25 Ottawa continues its $3.5 million renovation including updated Skywalk attachments, tenant amenities and a new façade.
In the suburbs, the Heritage Pointe campus on East Paris is expanding with three new buildings totaling roughly 80,000 square feet; in general, however, new office construction has not been as prevalent as previously forecasted. Construction costs and time for completion have been the main contributing factors.
Investment
In June, New York-based investment firm Ladder Capital purchased 4147 Eastern Avenue SE, a 101,683 square-foot office building which houses Priceline.com and AMI Entertainment. The sale represented an 8.7% capitalization rate. 401 Hall Street SW sold in June as well to a local business owner who plans to move his company, Information Systems Intelligence GR, into the building, which is already 80% occupied. The 190,000 square-foot building was originally industrial space until being converted to office suites in 2002.
Class A Class B Class C
Completion vs. Absorption
Vacancy Rate by Class
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CBD
Downtown
Airport Area
Burton/Breton
Cascade
Centennial Park
East Beltline
East Paris
Northeast
Northwest
Southeast
Southwest
50%
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
250
200
150
100
50
0
30%
26%
22%
18%
14%
10%
50% 60% 70% 80% 90% 100%
2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 12 12 12 13 13 13 13 14 14 14 14 15 15
2Q12 4Q12 2Q13 4Q13 2Q14 4Q14 2Q15
Downtown
CompletionsCBD Suburban
Suburban
AbsorptionsCombined
Occupancy Rate by Corridor
3 West Michigan Research & Forecast Report | Q2 2015 | Office | Colliers International3
Market – Submarket – Class
SUBMARKET EXISTING INVENTORY NUMBER OF BUILDINGS
EXISTING INVENTORY (SF) VACANCY (SF) VACANCY RATE OCCUPIED SPACE (SF) NET ABSORPTION
Q2 2015 (SF)
CENTRAL BUSINESS DISTRICTCBD 58 3,605,160 383,944 10.6% 3,221,216 107,307
Downtown 34 1,879,046 251,614 13.4% 1,627,432 25,239
SUBURBANAirport Area 22 805,096 263,300 32.7% 541,796 2,219
Burton/Breton 32 682,008 170,254 25.0% 511,754 7,470
Cascade 95 2,066,780 402,780 19.5% 1,664,000 3,494
Centennial Park 33 1,034,555 217,383 21.0% 817,172 0
E Beltline Corridor 59 1,375,662 188,061 13.7% 1,187,601 10,694
E Paris Corridor 57 1,565,910 164,419 10.5% 1,401,491 1,115
Northeast 44 590,009 122,828 20.8% 467,181 10,953
Northwest 59 771,155 179,338 23.3% 591,817 -4,060
Southeast 93 2,195,444 946,285 43.1% 1,249,159 3,491
Southwest 99 1,904,602 314,782 16.5% 1,589,820 -10,718
MARKET TOTALS 685 18,475,427 3,604,988 19.5% 14,870,439 157,204
Sales Activity Property Name Size SF Price Submarket
401 Hall Street SW 190,000 $5,300,000 Southwest
4147 Eastern Avenue SE 101,682 $9,300,000 Southeast
4000-4200 60th Street SE The Pyramid 516,305 Confidential Southeast
56 N Division Avenue 167,706 $525,000 Downtown
528 4th Street NW 9,600 $1,250,000 Downtown
Leasing Activity Property Name Size SF Tenant Submarket
333 Bridge Street NW 15,108Spectrum
Health (Expansion)
Downtown
2025 E Beltline Avenue SE 13,344 Wells Fargo Advisors Southeast
4079 Park East Court SE 1,955 Thriveworks Southeast
333 Bridge Street NW 6,542Michigan
Professional Exchange Service
Downtown
5300 Patterson Avenue SE 1,667Kellogg
Community Federal CU
Southeast
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401 Hall Street SW
333 Bridge Street NW
WEST MICHIGAN OFFICE TEAMFOR MORE INFORMATIONDavid ShaferResearch DirectorDIR +1 616 988 [email protected]
Jeff HainerResearch AnalystDIR +1 616 988 [email protected]
Gary AlbrechtAssociateDIR 616 242 [email protected]
Tom DeBoer SIOR, CCIMPrincipalDIR 616 988 [email protected]
Kris DePreePresident | HollandDIR 616 355 [email protected]
Deb MiddletonExecutive AssistantDIR 616 988 [email protected]
Scott Morgan JDPrincipalDIR 616 988 [email protected]
Erin NugentAssociate & Executive AssistantDIR 616 988 [email protected]
Jason WebbAssociateDIR 616 988 [email protected]
David WienerPrincipalDIR 616 988 [email protected]
4 North American Research & Forecast Report | Q4 2014 | Office Market Outlook | Colliers International
Copyright © 2015 Colliers International.The information contained herein has been obtained from sources deemed reliable. While every reasonable effort has been made to ensure its accuracy, we cannot guarantee it. No responsibility is assumed for any inaccuracies. Readers are encouraged to consult their professional advisors prior to acting on any of the material contained in this report.
Colliers International | West Michigan333 Bridge Street NW, Suite 1200 Grand Rapids, MI 49504+1 616 774 3500colliers.com/westmichigan
Key Takeaways > Location and functionality are driving office space decision-making, as companies are increasingly battling for talent acquisition and retention. Price point is becoming less of a factor than in the past. Companies are doing more self-evaluating to determine what matters most to them in terms of office space.
> Landlords continue to lengthen lease term and offer fewer concessions as inventory continues to decrease.
> Despite low interest rates and healthy purchase demand, sale transaction velocity slowed considerably as opportunities simply were not as readily available. Sale transactions were down 50% quarter-over-quarter.
> The past few years have seen an increase in collaborative work environments. This trend is slowing as employees multitask more than ever and desire to reduce distractions. Flexibility and the ability to transition from one type of space to another has become paramount.
> Rental rates have continued to inch upwards, with downtown asking rates now averaging $22.34 per square foot for Class A buildings and an overall downtown average of $19.73 per square foot. The suburban market has an average asking rate of $14.13 per square foot.
> Parking continues to be a topic of conversation concerning downtown Grand Rapids. The Grand Rapids Parking Commission contracted a consultant from Chicago to assess the situation and determine what changes can be made to better utilize existing lots.
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