Q3 Market Report

Office, Industrial & Retail Greater Grand Rapids Market Report Q3 2023

Grand Rapids | Holland www.cbcworldwide.com

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Office, Industrial & Retail Greater Grand Rapids

Grand Rapids | Holland Region

3Q 2023

greater grand rapids area | snapshot of counties covered

*Information in this report gathered from Costar.

Grand Rapids | Holland Region

INDUSTRIAL REPORT

3Q 2023 VACANCY VS. ABSORPTION Net Absorption

Vacancy

$6.61 Market Rent/SF/YR

2.4% Vacancy Rate

MARKET RENTS

93,453 Net Absorption in SF

Noted Lease Transactions Tenant

Building

Size

County

Comfort Research

2925 Walkent Ct

63,250 SF

Kent

Helios

5333 33rd St SE

45,975 SF

Kent

Dicastal Logistics Group

4440 44th St SE

45,000 SF

Kent

Noted Sale Transactions Buyer

Building

Sale Price

County

Grand Valley State University

620 Watson St SW

$9,282,000

Kent

Grand Valley State University

520 Watson St SW

$7,007,000

Kent

Kamar Partners

2530 Kamar Dr

$6,050,000

Ottawa

Industrial Update The industrial sector in the greater Grand Rapids market continues to perform well. The Q3 overall vacancy rate of 2.4% is down from 2.9% as of Q3 of 2022 and is well below the current national average of 4.7%.

Over the last 12 months, approximately 2.6 million SF has been absorbed within the market although Q3 showed a significant decrease in net absorption compared to the prior quarter. The largest new lease signed over the last year happened in December 2022 when Brasswater signed for 739,000 SF at 1040 40 th St SE in the S Grand Rapids/Kentwood submarket.

The Grand Rapids market annual rent growth has been increasing for the last several years, reaching an alltime high of 9.1% during Q4 of 2022. Since then, the annualized rent growth has been slowly decreasing and sits at 6.7% as of Q3, slightly below the US average of 7.7%. The Grand Rapids market though remains a very affordable industrial market with average rents of $6.61/SF, below the Detroit average rent of $8.40/SF and the national average of $11.60/SF. Approximately 1.6 million SF of construction continues across the Grand Rapids market. The W Grand Rapids/Walker submarket has just over 580,000 SF underway across four properties and the Southeast Kent County/Caledonia submarket (just south of the Gerald Ford International Airport) has 500,000 Sf underway across five projects.

Sales over the past 12 months totaled just over $300 million. Specialized property sales (including manufacturing) accounted for $231 million of the total and logistics properties accounted for the remaining $70.5 million. The current cap rate of around 8.7% comes below Detroit’s 9.6% which will continue to attract investors looking for lower-risk yields within Michigan.

Grand Rapids | Holland Region

OFFICE REPORT

3Q 2023 VACANCY VS. ABSORPTION Net Absorption

Vacancy

$20.07 Market Rent/SF/YR

7.1% Vacancy Rate

MARKET RENTS

42,925 Net Absorption in SF

Noted Lease Transactions Tenant

Building

Size

County

West Michigan Transport

5222-5230 33rd St SE

10,000 SF

Kent

Northwestern Mutual

Bridgewater Place

8,963 SF

Kent

Certe Drive

Campau Square Plaza

8,947 SF

Kent

Noted Sale Transactions Buyer

Building

Sale Price

County

Galactic Toys

5070 Cascade Rd SE

$2,600,000 SF

Kent

Monarch Holdings

6 Sherman

$2,200,000 SF

Ottawa

Unknown

Huntington Bank

$975,000 SF

Kent

Office Update The office sector in the greater Grand Rapids market has stabilized after moving between negative and weak demand over the last few years. The vacancy rate of 7.1% is just up 30 basis points over the rate a year ago.

There has been a net absorption of approximately 320,000 SF over the last 12 months but is important to note that tenant demand varies by property quality. 4&5 Star properties accounted for 170,000 SF of this total and 3 star properties accounted for 270,000 SF of net absorption. However, 1&2 Star quality space experienced 120,000 SF being returned to the market with move-outs. Rent growth has been affected by the gradual increase in vacancies and stands at 1.8% as of Q3. As recently as Q4 2022, annualized rent growth reached 3.5%. However, the Grand Rapids office market still is outperforming the national average annual rent growth of 0.8%.

There have been 19 office properties delivered in the Grand Rapids market since the beginning of 2022. 70% of this space (approximately 569,000 SF) has been delivered within the Central Grand Rapids submarket and is mainly composed of the MSU Medical Innovation Building and the Doug Meijer Medical Innovation Building. Construction is still occurring but at a slower pace. In Q3, around 270,000 SF was under construction.

Over the last year, $81.7 million in office properties have been sold. 3 Star properties accounted for $46.1 million and 1&2 Star properties accounted for $35.6 million of the total. The market cap rate has been moving upward and is now above 10%.

Grand Rapids | Holland Region

RETAIL REPORT

3Q 2023 VACANCY VS. ABSORPTION Net Absorption

Vacancy

$14.65 Market Rent/SF/YR

3.2% Vacancy Rate

MARKET RENTS

71,632 Net Absorption in SF

Noted Lease Transactions Tenant

Building

Size

County

Ross Dress For Less

Rogers Plaza Town Center

25,000 SF

Kent

Unknown

The Village at Knapp’s Crossing

7,344 SF

Kent

The Hangout

Center Town Mall

3,951 SF

Kent

Noted Sale Transactions Buyer

Building

Sale Price

County

Alrig USA

6333 Kalamazoo Ave

$5,470,000

Kent

JRA Associates

Walgreens

$4,800,000

Kent

Zeigler Auto Group

Elhart

$3,576,000

Ottawa

Retail Update Retail in the greater Grand Rapids area remains strong despite continued headwinds. According to CoStar, the vacancy rate ticked up in Q3 for retail settling at 3.2% which is 100 basis points below the national average. The vacancy rate increase is a step in the right direction for the local retail market with a healthy rate being between 5% and 10%. Most recently, discount retailers such as TJ Maxx and Dollar General dominated the charts with the largest retail leases signed in 2023.

Following the national deceleration of inflation, the annual rent increase is sitting right at 3.4%, just below the national average of 3.5%. This increase is closely aligned with long-term trends for the area and a welcomed change from the 6.3% all-time high of 22Q3. Average rental rates for the larger Grand Rapids area are at $14.65/SF which is 50% lower than the national average.

New development for commercial space continues to press onward despite high interest rates and construction costs. New projects over the past year totaled 190,000 SF of retail of which 47,000 SF is still underway. 71,438 SF of retail and office space located at 8381 Westway Park in Zeeland was the largest completed project this year and is already fully leased.

After a strong 2021 and record breaking 2022, retail sales is starting to see a bit of a slowdown.

Macroeconomic issues such as interest rate uncertainty and drying liquidity are finally starting to challenge inflated asking prices on properties. That being said, Grand Rapids still saw $185 million change hands as of 23Q3 which is a result of the long-term fundamentals and economic growth in the area.

kent mueller 616.888.5868 kent.mueller@cbsrcommercial.com

caleb driesenga 616.283.8205 caleb.driesenga@cbgreatlakes.com