Report: Commercial Real Estate Shows Resilience

Despite continued uncertainty in a turbulent market, the state of commercial real estate in Western Michigan still exhibits some flexibility.

David Rapp, principal and senior vice president of Advantage Commercial Real Estate, said:


Advantage recently released its Q2 2022 Market Trends Report, outlining key observations for the industrial, office, retail, land and investment sectors.

According to the report, inflation remains one of the biggest challenges for national markets, communities and businesses across all industries. But the outlook for Western Michigan remains optimistic, especially for certain markets.

For example, industry trends continue to show momentum despite supply chain issues and rising wages and transportation costs. Manufacturing continues to drive the regional economy, while e-commerce and logistics continue to offer new investment opportunities to the region.

“Industrial has been the most active product type in our market,” said Rapp, noting historically low vacancy rates and consistent demand for land.

Western Michigan has yet to see a negative impact on rents, occupancy rates, or sales volumes for the industrial market, according to the report. Looking ahead, however, uncertainty is still a factor in the national economy, which could lead to heightened caution.

Uncertainty is also affecting the Western Michigan office sector, as many companies continue to adopt a “wait and see” approach to returning to the office.

Other companies, such as Acrisure, which were once fully remote, are now back in the office, prompting other local businesses to reassess their plans for the second half of 2022, according to the report.

For Mr. Rapp, office activity in Grand Rapids remains a transitional period as companies assess their unique needs.

“Downtown was quiet for a while,” he said. “The challenge is keeping leasing and real estate needs on schedule. Do we need as much square footage as before? What is the term of our lease? Can we shift and pivot?”

Companies currently in the middle of three- to five-year lease terms are likely to judge market stability in the near future, according to the report. For now, Q3 2022 doesn’t seem likely to see any drastic changes.

As for the Western Michigan retail market, a new report from Advantage shows increased activity in the second quarter. The report’s authors suggest a link between this growth and the return of some businesses to offices, boosting overall activity in downtown Grand Rapids.

However, this surge in activity does not reflect an increase in new retail spaces.

“Currently, development from a retail perspective is not very advanced,” says Rapp.

Additionally, while the year’s first quarterly report expected more action from retailers across the country, the new report shows uncertainty due to limited availability.

Despite limited inventory in Grand Rapids, local entrepreneurs are eager to bring their concepts to market, but Rapp said demand and challenges are site-specific. pointed out.

“There are users in the market who specifically want to become established retail corridors, and different users are vying for those sites,” he said. “When I say they are fighting for a site, they are not fighting for a vacant lot. They are fighting over an existing building that could be reused.”

Looking ahead, the report calls on commercial real estate professionals to get creative and help businesses find their ideal location within Western Michigan. At the same time, entrepreneurs with breakthrough ideas can ensure a healthy retail market in the years to come.

With all sectors overlapping, the Western Michigan investment market is experiencing challenges beyond inflation. High interest rates and stock market volatility are the main factors that make markets difficult to navigate.

The report expects many properties to be held for the foreseeable future as investors continue to lead cautiously in high demand.

“Investment markets are something to watch because rising interest rates have definitely impacted value or are beginning to be absorbed by the market. We’re starting to see some properties sit a little longer just because they’re more expensive than they are,” Rapp said.

The report also points out differences in perceptions of the realities of land prices, which have risen in recent years. As the sector grows, industrial land remains a high demand type of development.

And while uncertainty still stands out among some of the recent trends in commercial real estate, Rapp doesn’t see caution as a negative approach.

“We’re not oversupplying the West Michigan market. There are many reasons for that,” he said. “But we are not oversupplying the market, so the market remains healthy.”