Expansion of Downtown office rental space

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Expansion of Downtown office rental space

“Some of the increase in rent is because of the movement of tenants in downtown,” said Jeff Karger, senior vice president of JLL. “There is new inventory on the market such as the Perrigo’s new corporate headquarters so the asking rate for new construction for those spaces ticked up because of new inventory. New construction of buildings is much more expensive than second generation space so the cost to lease that space is typically not the same that it is for historical buildings.”

About 56.1% of the 111 Lyon building is leased due to the recent move of law firm Warner Norcross + Judd, which was the largest tenant. Arena Place, Riverfront Plaza, Warner Building and Studio Park currently are 100% occupied.

“The skyline vacancy is ticking up slightly with several companies, such as Morgan Stanley, vacating downtown for new suburban offices,” he stated in the report. “We should see that trend continue throughout the end of the year as companies are evaluating their occupancy needs moving forward. Although we won’t see a strong increase, it will be a trend nevertheless.”

Despite the occupancy rate being at 100% in some buildings, Karger said vacancies in downtown will be much more noticeable in the next few quarters because employers will be moving their companies to the suburbs as they reevaluate their work model.

Story Highlights

  • The direct average asking rent per square foot is $22.22, which is a 1.7% year-over-year increase, surpassing the previous high in 2018. One of the reasons the average asking price for rent has increased is because of the new construction of Doug Meijer Medical Innovation Building, Studio Park and also the ongoing construction of Perrigo’s new 125,00-square-foot North American headquarters at 430 Monroe Ave. NW in downtown Grand Rapids. 

  • In addition to the increase in rent, Karger said there is a slight increase in vacancies. In its Skyline analysis, JLL reported that the total direct vacancy in office spaces in downtown Grand Rapids is 17.5%, which is a 0.5% year-over-year vacancy change. Some vacant offices are in Bridgewater Place, 250 Monroe, 111 Lyon, 99 Monroe, 171 Monroe, 37 Ottawa, 50 Louis St., 77 Monroe Center, 40 Pearl, 200 Ottawa, 300 Ottawa and the McKay Tower.

Some of the issues Karger said employers think about when making the decision to move out of the city are city income taxes and the cost of parking.

“Those two things are typically line items for companies and their employees,” he said. “If there is an opportunity in the suburbs without being downtown, then they will look at that more. That also means corporations are being cautious of where their employees are and with the hybrid (work location) model taking place, we anticipate that the hybrid model will be prevalent, which allows people to work from home periods of time and being a little bit closer to their household, and less commute time is something that people are evaluating.”

While the work-from-home and hybrid models have proven to be successful, Karger said the office workplace still will be relevant. “I am a firm believer that work from home and hybrid work strategies are a real thing moving forward,” he said. “People will use it. I think the office will be the central point of business and where work is located. How employers use the space will probably change. We are seeing that throughout our market, meaning that it will be a central place for people to come to meet, collaborate, work on projects, but we probably will not see a dedicated space for them to use moving forward. That was a model that was on track, but the pandemic accelerated that.”

According to the Bloomberg, Partnership for New York City, Forrester Consulting and JLL Global Corporate Solutional Survey, 62% of people who were highly satisfied with their office environment strongly miss their workplace. The survey also stated that most offices are expected to reach 85% capacity, and 75% of employees want to be able to work from the office, 24% want to work exclusively from the office and 63% prefer a hybrid model. The number of employees that do not want to work remote is continuing to increase.