Steady start in Q1 for West Michigan office market ends in uncertainties
After a slow end of the fourth quarter in 2019, the start of the first quarter of the new year saw an increase in tenant activity in the West Michigan office market.
The national unemployment rate beginning the quarter was 3.6 percent, and locally also remained low at 3.1 percent. In March, the quarter took a sharp turn due to the COVID-19 pandemic. By the end of Q1, eight percent of Michigan residents had filed unemployment claims due to an executive order closing nonessential business during the coronavirus pandemic. Many office workers began working from home by the end of the quarter. This led to many companies hitting pause on their assessment of office space requirements. The uncertainty arose whether or not the situation will lead to companies needing smaller spaces to operate. Alternatively, some companies might reconfigure their workplace making it less dense for people going forward, which in turn leads to larger space requirements.
The new year was off to a steady start, with buyers driving activity to expand or open new headquarters. The vacancy rate for downtown office space is 9.41% and 6.17% for the suburban market. Rental rates increased downtown in the first quarter, totaling $21.68 per square foot, while decreasing slightly in the suburban market at $15.88 per square foot. There was significant activity in downtown Grand Rapids and several large transactions in the office market in Q1. In a joint acquisition, Gun Lake Investments and Waseyabek Development Co. acquired the iconic McKay Tower in downtown Grand Rapids for $17.5 million. Spectrum Health continued to acquire property in Grand Rapids’ North Monroe district after announcing last year it would build a new office building on the northwest side that will serve as the Center for Transformation and Innovation and house 1,200 employees. Several companies made the move to locate downtown Grand Rapids, offering their employees many of the quality of life amenities associated with being downtown. Red Cedar Investment Management opened a 4,000-square-foot office in Bridgewater Place downtown. Data company ZoomInfo is also planning to move into a 10,000-square-foot space downtown and will have about 100 sales and account management employees in the space. Calder Capital, a local M&A firm, acquired a 3,385-square-foot office space at 25 S Division Avenue in the Heartside district.
Elsewhere in West Michigan, Cascade Township officials settled on a new 12,930-square-foot space on 1.23 acres at 5920 Tahoe Drive SE in Centennial Park. The township paid $1.4 million for the space, which will allow it to house all departments in the same building and was formerly occupied by ADAC Automotive. In Wyoming, Rivertown Dental paid $1 million for a new office space on Wilson Avenue. Grand Rapids Area Black Businesses is planning to move into its new 4,500-square-foot headquarters in southeast Grand Rapids by fall 2020.
Companies are mostly interested in new, modern spaces with good visibility and access to parking and other amenities. This quarter also saw a growing demand for standalone suburban office space. Four new freestanding banks have been constructed in Cascade. Those new bank branches being Grand River Bank at 50 Crahen Avenue NE; West Michigan Community Bank at 4797 Cascade Road SE; First Community Bank at 4455 Cascade Road SE; and a new Mercantile Bank branch at 4737 Cascade Road SE that the company had acquired last quarter. A new 17,500 square-foot building for Morgan Stanley is expected to open in the fall at 5122 Cascade Road SE.