• Mon. Nov 28th, 2022

Experts weigh in on the outlook for commercial real estate

ByWillie M. Evans

Sep 28, 2022

A panel of experts gathered for the Business Journal’s latest breakfast series to discuss the biggest hurdles facing the commercial real estate industry in West Michigan and what is being done. to solve these problems.

It’s no secret that the sector has seen its share of pandemic-related challenges in recent years, from job vacancies to labor shortages to high interest rates. The event aimed to explore these issues and potential solutions with the final Breakfast Series event on September 14 at Frederik Meijer Gardens & Sculpture Park.

Moderator Randy Thelen, President and CEO of 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 general manager of commercial real estate at Huntington Bank; and Tim Van Noord, director and senior vice president at Advantage Commercial Real Estate.

Despite some general uncertainty, some aspects of the status of commercial real estate in West Michigan are still showing some resilience, if not success. Industrial trends have shown momentum as manufacturing, e-commerce and logistics continue to boost the local economy.

Van Noord highlighted the growth in the demonstrated resilience of this sector compared to other sectors.

“The industrial side has been very fluid,” he said. “COVID has really helped us, actually. Much of what retail or office has gone through has almost benefited industry.

However, steady growth has brought its own challenges, primarily a lack of inventory.

“If you’re an industrial user, you need to buy a building and occupy it today,” Van Noord said. “There are three properties on the market in Kent County at the moment – ​​just three. And this is significantly less than two or three years ago. If you are a tenant needing 100,000 square feet, there are maybe three or four options today.

Thelen agreed, noting that the current vacancy rate stands at 1.7% and creates a tight market. As for a solution, Van Noord said those in the industrial space need to get creative to meet this challenge.

“They may have to look outside of Lowell or Wayland or Coopersville and more tertiary locations to find land and expand,” Van Noord said. “You also see individual rearrangements. The Visser brothers have just purchased the DeltaPlex building, and this building is already fully leased. They haven’t even started the demolition work yet.

Van Noord added that everyone, from brokers to bankers to government officials, needs to work together and find solutions.

From a banking perspective, McGee pointed to the uncertainty caused 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 challenges from a developer’s perspective with land acquisition and construction in addition to consumer struggles with rising costs for things like groceries, utilities, insurance and other commodities. .

“Developers are looking at their consumers…what does that mean for retail tomorrow when the consumer has less cash available to spend?” he said.

Those in the office sector consider the needs of employees in the same way. Makowski said it had been a “roller coaster” in the office sector in light of the pandemic.

“I will say that there is a lack of inventory from a sales perspective in the office space, as crazy as that sounds or not. There are not many office buildings for sale on the market,” Makowski said.

Thelen mentioned recent trends of employers upgrading or repositioning office space to help their teams get back to the office. While Makowski said he didn’t see too much need or demand for an overhaul for the local office sector, he did witness the importance of flexibility when it comes to any return transition. in the office.

“Companies are forced to be flexible,” he said.

But Makowski said he’s unsure whether a hybrid work model is sustainable as a long-term solution.

“The training, the camaraderie, the collaboration…maybe it works for some industries, but there are a lot of industries where I personally don’t see how it works long term,” he said. . “I think we’ll see more and more people coming back into offices over time. There could still be a hybrid element, but I think it will be reduced over time.

Makowski also discussed the challenges posed by construction and renovation costs for companies looking to modernize their office spaces. Many employers are looking for a more move-in-ready “plug and play” space as a solution to avoid diminished returns on investment.

While uncertainty remains prevalent in the commercial real estate sector, panelists said West Michigan continues to maintain a sense of resilience 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 haven’t been hit as hard as Detroit was in the Great Recession, and if there’s another recession – or if we’re in one, as people think – I think we’re in for it. we’ll do pretty well.”

McGee agreed, noting the traditionally conservative approach to business in the western Michigan region.

“I think the relative conservative stance that a lot of our business owners are taking, and frankly consumers are taking with their own personal balance sheets and cash flows, I think has helped us before and would probably help us here,” McGee said. .

In light of his experience with The Right Place and the new investment and growth occurring in and around Grand Rapids, Thelen said the region can continue to battle uncertainty and real estate challenges. business while staying true to a vision for the future.

“What I do know is that regions, businesses, individuals, investors…those who can see through the noise and stay true to their vision and strategy are going to come out the other side in a position much stronger,” Thélen said.

This story can be found in the October 3 issue of the Grand Rapids Business Journal. To get more stories like this delivered to your mailbox, subscribe here.