A panel of experts gathered for the most recent Business Journal Breakfast Series to discuss the biggest obstacles facing the commercial real estate sector in West Michigan and what is being done to address those issues.
It’s no secret that the sector has experienced its share of pandemic-related challenges in recent years, from vacancies to labor shortages to high interest rates. The event aimed to explore these issues and potential solutions with the latest Breakfast Series event on Sept. 14 at Frederik Meijer Gardens & Sculpture Park.
Moderator Randy Thelen, president and CEO at The Right Place, discussed the current outlook with panelists Jason Makowski, partner and office specialist at NAI Wisinski of West Michigan; Bill McGee, senior vice president and managing director of commercial real estate at Huntington Bank; and Tim Van Noord, principal and senior vice president at Advantage Commercial Real Estate.
Despite some general uncertainty, certain aspects of the status of commercial real estate in West Michigan still show some resiliency, or even success. Industrial trends have exhibited momentum as manufacturing, e-commerce and logistics continue to drive the local economy.
Van Noord highlighted the growth of this sector’s demonstrated resiliency compared to other sectors.
“The industrial side has been really smooth sailing,” he said. “COVID really helped us, actually. A lot of what retail suffered or office suffered has almost benefited industrial.”
Steady growth has posed its own challenges, however — mainly a lack of inventory.
“If you’re an industrial user, then you need to buy a building and occupy it today,” Van Noord said. “There are three properties on the market in Kent County right now — just three. And that’s drastically down from two or three years ago. If you’re a tenant in need of 100,000 square feet, there’s maybe three or four options today.”
Thelen agreed, noting the current vacancy rate comes in at 1.7% and makes for a stressed market. As for a solution, Van Noord said those within the industrial space have to get creative to tackle this challenge.
“They’re having to look maybe outside of Lowell or Wayland or Coopersville and more tertiary type of locations to find land and develop,” Van Noord said. “You’re also seeing some individual redevelopment. The Visser Brothers just purchased the DeltaPlex building, and that building is fully leased out already. They haven’t even started the demolition work yet.”
Van Noord added it takes everyone from brokers to bankers to government officials to work together and seek out solutions.
From a banking perspective, McGee emphasized the uncertainty brought on by inflation and its effects on the status of commercial real estate.
“It’s a challenge, and we try to thread the needle every day,” McGee said. “It feels like we’re in the middle of another economic shift.”
McGee noted the challenges from a developer standpoint with acquiring land and building in addition to consumer struggles with the costs of things like groceries, utilities, insurance and other commodities on the rise.
“Developers are looking at their consumers … what does this mean for retail tomorrow when the consumer has fewer disposable dollars to spend?” he said.
Those within the office sector are considering employee needs in a similar way. Makowski said it’s been a “rollercoaster” within the office sector in light of the pandemic.
“I will say there’s a lack of inventory from a sale perspective in the office arena, as crazy as that may or may not sound. There aren’t a lot of office buildings on the market for sale,” Makowski said.
Thelen mentioned recent trends of employers modernizing or repositioning office space to help their teams transition back to the office. While Makowski said he hasn’t seen too much of a need or demand for redesign for the local office sector, he has witnessed the importance of flexibility when it comes to any return-to-office transition.
“Companies are being forced to be flexible,” he said.
But Makowski said he is uncertain whether a hybrid work model will be sustainable as a long-term solution.
“The training, the camaraderie, the collaboration … maybe it works for certain industries, but there’s a lot of industries where, personally, I don’t see how it works long-term,” he said. “My belief is we will see more and more people back in offices over the course of time. There still might be a hybrid element, but I think it will be reduced as time goes on.”
Makowski also touched on the challenges brought on by construction and remodel costs for companies hoping to update their office space. Many employers are seeking “plug and play” space that is more move-in-ready as a solution to avoid a decrease with returns on investment.
Although uncertainty remains prevalent among the commercial real estate industry, the panelists said West Michigan keeps maintaining a sense of resiliency due to the unique nature of the overall market here in the region.
“We’re very well diversified with food and beverage, automotive and manufacturing, and that diversification helps,” Van Noord said. “Generally, we didn’t get hit nearly as hard as Detroit in the Great Recession, and if there’s another recession — or if we’re in one, as people think we are — I think we’ll fare pretty well.”
McGee agreed, noting the traditionally conservative approach to business in the West Michigan area.
“I think the relative conservative stance that a lot of our business owners take, and frankly consumers take with their own personal balance sheets and cash flow, I think helped us before and would likely help us here,” McGee said.
In light of his experience with The Right Place and the new investments and growth happening in and around Grand Rapids, Thelen said the region can continue to combat the uncertainty and the challenges with commercial real estate by staying true to a vision for the future.
“What I do know is the regions, the companies, the individuals, the investors … those who can see through the noise and stay true to their vision and stay true to their strategy are going to come out the other side in a much stronger position,” Thelen said.
This story can be found in the Oct. 3 issue of the Grand Rapids Business Journal. To get more stories like this delivered to your mailbox, subscribe here.
SEPTEMBER 19 ISSUE
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