ECONOMIC & COMMERCIAL REAL ESTATE … & COMMERCIAL REAL ESTATE FORECAST REPORT 15th annual Colliers...

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WEST MICHIGANECONOMIC & COMMERCIAL REAL ESTATE

FORECAST REPORT15th annual

Colliers International is pleased to provide you with the 2015 West Michigan Real Estate Forecast Report. Year after year, we work hard to ensure that the information we provide is current, complete, and accurate. We know that over the years this data and our expertise has driven numerous influential decisions throughout West Michigan, and we remain committed to ensuring our market knowledge is working for your success.

The marketplace is constantly moving and accelerating, perhaps more quickly now than ever observed before. In order to anticipate future moves within our market, we make a deliberate and regular effort to stay in touch with each segment of the market. Given our size and market share, we are able to leverage the collective knowledge of the most experienced team of commercial real estate professionals in West Michigan. Since we focus our efforts on maintaining the most current market knowledge, our partners can quickly position our clients for success as the market shifts. Our mission is simple: to accelerate your success.

We sincerely appreciate the many years of service we’ve been able to provide to our client partners and to West Michigan. We consider ourselves fortunate to call West Michigan home and to be able to partner with so many good clients, neighbors and friends. We look forward to continuing our partnership with you.

Sincerely,

Colliers International | West Michigan

Duke Suwyn SIOR, CCIM President & CEO

Letter from President & CEO

Colliers International2

Grand rapids

Industrial Market ................................................................................................................................... 4

Investment Market .................................................................................................................................. 8

Office Market ........................................................................................................................................ 12

Retail Market ...... ................................................................................................................................. 16

Holland Market .................................................................................................................... 20

kalaMazoo Market ............................................................................................................ 24

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Table of Contents

Colliers International 3

The West Michigan industrial real estate market continued to mature in 2014 with landlords, tenants and brokers all adjusting to the reality that demand for quality space has reached an all-time high and supply is struggling to keep up. As the region continues to attract national and international manufacturers, industrial inventory has been stretched near its limit. As forecasted last year, we saw the return of construction, albeit modest, and the creative repositioning of functionally obsolete buildings to meet the needs of companies without many options. Whereas in the past, landlords struggled to keep entire buildings full and had to juggle multiple tenants, in 2014 and moving into 2015 we are predicting larger companies entering the market and existing ones expanding within it. This trend is stabilizing these assets for ownership and in turn attracting new investors from all over the country. Subsequently, sale prices are getting closer to cost of new construction according to Colliers International President, CEO, and industrial broker, Duke Suwyn. The market saw positive absorption in three of the four quarters this past year, and we predict a net year-end

total of 472,600 square feet absorbed – pushing the overall occupancy rate past 94%. Although absorption was slightly lower than the 2013 total, we had predicted a slowdown due to diminishing available product and the continued need for new facility construction. Rental rates crept higher and concessions given by landlords again moderately decreased due to competition for space.

It is not much of a secret that manufacturing has buoyed West Michigan in recent years. According to the W.E. Upjohn Institute, during the 12-month period ending in July 2014, manufacturers in West Michigan increased their work forces by 3.4% – outpacing overall area employment growth by 40 basis points. This has had a direct correlation to overall industrial occupancy (see graph on page 7). In addition, the overall unemployment rate in Kent County dropped to a state-low of 4.0%. With strong workforce talent and a desirable geographic location, West Michigan continues to catch the eye of many major companies around the globe. As the trend of on-shoring increases, we have seen major capital

Grand Rapids | industrial Market

“During the 12-month period ending in July 2014, manufacturers in West Michigan increased their work forces by 3.4% – outpacing overall area employment growth by 40 basis points”


investment in the area. Companies like Proos Manufacturing, NOVO 1, INglass S.p.A., Plasan Carbon Composites and others have combined to invest nearly $275,000,000 and create over 2,000 new jobs. Recently, Chinese automotive supplier CiTiC Dicastal Co. Ltd. committed $140 million to open production at the former Uni-Solar campus in Greenville. The manufacturer of aluminum wheels plans to add approximately 300 jobs and should be operational by the end of 2015. In Walker, the 700,000-square-foot Avastar Industrial Park is now essentially full due to Profile Industrial Packaging Corp. purchasing a 200,000-square-foot condo section. In Lowell, Brunswick Corporation expanded their footprint at 1016 N. Monroe Street and now occupies 398,387 square feet of the 450,000-square-foot

building. Additionally, developer/investor Franklin Partners, LLC acquired nearly 1.5 million square feet previously owned by Steelcase and has since leased nearly half of the space to food processor Roskam Bakery Co.

Despite limited quality supply and large chunks of space being eaten up, 2014 saw an overall increase in both sales and leasing activity. In 2014, the market executed 123 leases and 101 sales (compared to 108 leases and 75 sales in 2013) a 12.2% and 25.8% increase, respectively. High demand and healthy activity has pushed us to the brink of full-capacity, and forced brokers and clients to work hard with one another to create solutions. Moving into 2015, we don’t see demand or activity slowing down and will be interested

PLASAN CARBON COMPOSITES | 3195 WILSON AVENUE NW


to see how the market reacts to and facilitates this momentum. Build-to-suit construction, speculative construction and reconfiguration of existing product are all anticipated to be strong considerations. One example of new construction in 2014 was Alliance Beverage’s warehouse on 60th Street SE, which was completed this past year. The merger of Kent Beverage and B&B Beverage Co. created the need for the new 276,000-square-foot facility, which sits on nearly 32 acres of land.

The industrial market’s last period of considerable growth was spurred by large corporate shutdowns and specific industry consolidations, providing available space. We do not see that being a theme over the next five years. Therefore, we see new construction being the most viable market driver over that period of time. The creation of new space will cause a modest upward adjustment of overall rental rates. It will also increase the rental rate divide as functionally obsolete space becomes even less desirable and new buildings requiring rates much higher than previously seen. New construction could also cause the creation of a new industrial corridor. As large lots of land will be needed for ground-up builds, historically

dense industrial areas might not be the solution. According to our experts, submarkets with the highest availability of land will see the most interest in 2015 for this reason.

A project to keep an eye on this year is the Site36 development on 36th Street SW in Wyoming. The 92-acre site was once home to a two million square-foot General Motors stamping plant, which has since been demolished. Site36 is a public-private partnership between the City of Wyoming, developer Lormax Stern and economic developer The Right Place, Inc. Currently, the partnership has J.O. Galloup, a subsidiary of Kendall Electric, committed to build a $4.5 million, 104,000-square-foot manufacturing and warehouse complex on the site; however, the majority of the site is still available. Developers are hoping that tax incentives and the site’s inherent qualities will attract one or two large-scale manufacturers to make the location home. The site has basically unlimited infrastructure and a community of skilled labor, making for a major story this year if a deal can be struck.

Going forward into 2015, we expect to see employment in the area, specifically manufacturing,

ALLIANCE BEVERAGE | WHILE UNDER CONSTRUCTION


have humbled gains. Economist Brian Long, director of Supply Chain Research in the Seidman College of Business at Grand Valley State University, says the region continued to see “modest growth” towards the end of 2014. On a national level, the Business Roundtable’s Fourth Quarter Outlook Index communicated some pessimism for the 2015 economy due to government tax policy and regulatory issues, so it will be interesting to see how that effects overseas investment in the U.S. economy. The West Michigan market has been very strong in the face of some of the adversity of the nation, so we anticipate that any major economic slowdown will not hit home as hard for us as in other places.

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“The creation of new space will cause a modest upward adjustment of overall rental rates.”

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THE SHOPS AT CENTERPOINT

“This project exemplifies the success value-add investors have had across multiple property segments”

Grand Rapids | investMent Market

Sentiment in the investment sector of the West Michigan real estate market remains positive moving into 2015. Steady economic growth and low interest rates continue to be the key forces behind increasing investor confidence. Demand for quality opportunities outpaced supply in 2014, causing the market to shift in favor of sellers. Many value-add investors have had to reform their strategy, as most distressed assets have now traded hands. In 2015, competitive debt and equity markets will continue to make the real estate market a competitive arena to deploy capital in. Commercial banks have largely finished deleveraging and restructuring legacy loans, investment banks have reemerged as a source of funds, and insurance companies continue their steady disciplined lending. According to Emerging Trends in Real Estate 2015, “the issue for 2015 is not the volume of liquidity supporting the industry… it’s navigation”. With rising interest rates looming in the future, many investors see now as a great time to lock in debt and strategically leverage it in real estate investments. The combination of available capital and shortage of opportunities in major markets has translated into greater interest throughout the West Michigan market. Traditionally, larger institutional investors have operated in areas of familiarity. We are now seeing a wider array of investors exploring the opportunities available in West Michigan. We expect 2015 to be a continuation of this trend and will be monitoring how this affects competition for assets, cap rates and capital invested by out-of-state investors. While West Michigan cap rates are higher than national averages (lower property value compared to operating income), our market saw a decrease across all property types in 2014 that we anticipate will follow a similar trend throughout 2015.

The retail segment lagged the overall market coming out of 2013; however, our prediction that it would rebound in mid-to-late 2014 was proven correct. Moving into the New Year, we expect the retail sector to continue making strides. As stated in last year’s forecast, we see retail activity as a

function of an overall economic cycle that starts with industrial growth and leads to job creation, which spurs consumer spending. The industrial market is now at approximately 94% occupancy with steady manufacturing employment growth of 3.4% year-over-year and an unemployment rate at a state low of 4%. We are clearly now into the pro-retail segment of that cycle. This will translate into new retail developments and additional national tenants wanting to enter the market, all good signs for investors and developers of real estate. The Shops at Centerpoint on 28th Street SE is a great example of an out-of-town developer/investor coming to the market and successfully executing and repositioning a failing asset. The site has since changed hands to a new owner, completing the investment cycle for this high profile retail location in West Michigan. This project exemplifies the success value-add investors have had across multiple property segments in purchasing a distressed asset, reinvesting in it, and ultimately selling it as a stabilized repositioned piece of real estate.

The office market continues to be divided into two segments – the downtown Central Business District (CBD) and the suburbs. The downtown district has experienced significant ownership consolidation over the past 36 months, with many buildings being purchased by firms with a local presence. New owners are well capitalized with multi-year repositioning strategies focused on adding amenity packages, updated common areas and building exteriors. The result is rental rates that have risen by approximately 25% since 2011. Twenty5 (25 Ottawa Avenue SW), the Trust Building (40 Pearl Street NW), Calder Plaza (250 Monroe Avenue NW), 99 Monroe, Bridgewater Place (333 Bridge Street NW), and the Waters Building (161 Ottawa Avenue NW) are all examples of assets that have changed hands during the last three years. Suburban office buildings will begin to see the trend taking place downtown of ‘acquisition to reposition’, as limited inventory downtown will push investors to the suburban market.


The industrial market remains one of West Michigan’s most active property types for investors. There is virtually no availability of quality, heavily infrastructured industrial buildings. Investors who can identify opportunities to create space for tenants will be able to improve their asset’s value through tenant lease-up. This past year, Franklin Partners, LLC, an Illinois-based investor, purchased 1.5 million square feet of Steelcase’s campus on Broadmoor Avenue SE. They have since leased nearly half of the building and have the remaining space in the building and approximately 35 acres of vacant land on the market. Other notable transactions include national REIT, ARC Global Partners’, purchase of the 281,715-square-foot GE Aviation building at 3290 Patterson Avenue SE for $138/square foot. Finally, New York-based Praedium Group purchased the 434,000-square-foot, single tenant building at 4247 Eastern Avenue SE. In 2015, we predict increased activity from out-of-market investors actively seeking industrial investments as the West Michigan market continues to grab the national spotlight for its economic stability.

Multi-family apartment projects have been the most actively traded asset in our market. With a growing workforce and the rising popularity of West Michigan, occupancy rates are at record highs. New multi-family developments are underway or in the planning stages throughout

West Michigan. With over 1,300 units delivered, under construction, or planned, the downtown Grand Rapids market will see increased investor activity continue to pressure cap rates lower. Notable transactions include the sale of a 222-unit property known as Richmond Hills Apartments, and 306-unit Oxford Place. Both properties should see investors increase rents through strategic unit upgrades. A New York-based investor, The Embassy Group, had a big year with acquisitions that included the Cambridge Partners six-property portfolio that consisted of over 1,000 units, as well as the 144-unit Glen Oaks East Apartments.

A market driver affecting all property types in 2015 will be increases in new construction. Fundamentals have continued to improve and the increased demand for quality space will lead to the new construction. The positive economic environment of West Michigan will continue to attract investors seeking real estate investment opportunities, although shortage of inventory will be a barrier to entry in our marketplace throughout 2015. The basic “principle of anticipation” states that any investment is priced based on the anticipated benefits of future ownership. We believe the West Michigan market has a stable and bright future and expect that investors will continue to experience this as West Michigan continues to receive accolades for entrepreneurship, growth, and sustainability.

“With a growing workforce and the rising popularity of West Michigan, occupancy rates are at record highs”


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4247 EASTERN AVENUE SE


In 2014, the West Michigan office market was shaped by a few key factors – continued job growth, evolution of the way office space is used, transportation logistics, as well as repurposing and repositioning of office buildings. We saw unemployment for all of West Michigan drop 180 basis points to 4.9%, and private sector employment grow 320 basis points with the addition of 17,300 jobs as companies continue to expand. Compare this to a state unemployment rate of 7.1% and a private sector employment growth of only 50 basis points. While companies make strategic moves to accommodate this growth, they are engaging space planners to incorporate design efficiencies and collaborative work environments. Tenants and landlords alike have largely embraced this and in turn have seen some major repositioning of a few marquee office buildings in the market, specifically downtown. Companies looking for a new office are prioritizing the look and feel of space over other factors now more than ever. This sentiment was echoed by the recently-held Commercial Construction & Development Roundtable, in which 10 executives from the industry discussed trends they are seeing in the market. Finally, the investment and growth of our public transportation system has helped alleviate some of the growing parking concerns and enabled workers to sprawl while still having efficient access to downtown workplaces and mobilization during the workday. The Rapids launched the $40 million Silver Line Transit system this past fall, which is a 9.6-mile route that connects the city’s core to the Medical

Mile, Wyoming, and Kentwood. Supporters say the route can cut an average commute by approximately 40%. This ability has added to the allure of making downtown a place to call home.

As the recovery has regained a foothold, we are now seeing enough confidence to explore the market and its possibilities. As Grand Rapids continues to grow as an urban destination, building owners have to progressively plan to keep up with the shifting paradigm. New owners of Arena Station at 25 Ottawa Avenue SW have rebranded it “Twenty5”, which at the time of acquisition was roughly 40% occupied. Repositioning this asset will include new common areas and the addition of various tenant amenities. Other buildings in the market have begun the repositioning process as well. The Waters Building at 161 Ottawa Avenue NW was purchased by Waters Building, LLC. Plans for this historic 290,000-square-foot office building include office, retail, residential and hotel space. The renovation is scheduled for completion in late 2015 with an estimated cost of $35 million.

Arena Place, located at 45 Ottawa Avenue SW, broke ground in 2014. It will be a mixed-use building anchored by law firm Miller Johnson, who will occupy 54,000 square feet, as well as restaurant operator Meritage Hospitality Group and brand agency Domoregood|Hanon McKendry. The 11-story building located just west of the Van Andel Arena is scheduled for completion in 2016. Arena Place Development, LLC is teaming with Concept

Grand Rapids | oFFice Market

“While companies make strategic moves to accommodate this growth, they are engaging space planners to incorporate design efficiencies and collaborative work environments”


ARENA PLACE | 45 OTTAWA AVENUE SW


Design and Orion Construction to design and construct the building. Other repositioning projects to occur in the CBD are The Ledyard Building (125 Ottawa Avenue NW), The Trust Building (40 Pearl Street NW), and The Trade Center Building (50 Louis Street NW). In a number of situations, building owners were able to work with the Downtown Development Authority for façade grants, Brownfields Tax Incentives, Tax Increment Funding (TIF), and the Michigan Strategic Fund (MSF) for assistance.

The suburban office market is primed to shift, as well. As the downtown office market becomes increasingly tight, tenants will begin to seriously look at alternative options in the suburbs. With an emergence of call-center type users, as well as a shift toward collaborative work environments, the number of workers occupying space has grown. This will increase the demand for on-site parking, and users demanding a higher ratio of spaces will be intrigued by the suburbs due to the lack of availability and cost of downtown parking. Owners of suburban office buildings will be put under pressure to upgrade their buildings, to meet expectations of tenants who know about the quality of buildings downtown. Because the cost of redevelopment of outdated or obsolete product can be cost prohibitive, we expect the reemergence of new suburban office construction in the near future. One example of new construction is the three new medical buildings planned to be completed in 2015 on East Paris as Phase II of the existing Heritage Pointe Center, which will total approximately 80,000 square feet of

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“The office market has maintained steady absorption for the past 16 quarters”

new space. Currently, the suburban office market is largely built-out in the main corridors such as East Paris Avenue, Cascade Road and the East Beltline Avenue. We expect to see some creativity in construction and even the possibility of a new suburban corridor emerge south near M-6.

Looking forward into 2015, we expect to see the trend of repositioning continue downtown and begin in the suburbs. As competition for tenants forces ownership groups to get creative with their buildings, we predict more reimaging and more multipurpose building configurations. We will also see the downtown office market begin to develop north and south as the core becomes increasingly tight. The office market has maintained steady absorption for the past 16 quarters and despite planned additions to market inventory, many tenants looking to expand or upgrade will be left with fewer and fewer quality options. Tenants

looking for new offices are beginning to fall into two distinct camps – those willing to pay a premium for the amenities and prestige of a Class A building, which have exhibited increasing rental rates due to investment into them, or those shopping for value in suburban or Class B/B- downtown space. Because of this, some of the Class B+ space is being caught in the middle. Landlord concessions will continue to fall as they gain more leverage against tenants and lease terms will increase as the market continues to stabilize. We foresee 2015 being another successful year for the office market, with the continuation of trends we saw in 2014 and the shifts we predict moving into 2015. We expect positive absorption for each of the next four quarters, and as Grand Rapids continues to gain national recognition for talent, opportunity and entrepreneurial spirit, we see no signs of it reversing course anytime soon.

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TWENTY5 | 25 OTTAWA AVENUE SW

Many Grand Rapids retail market trends of the past continued into 2014. New marquee transactions or projects and big name tenants entered or expanded within the market as well. West Michigan continues to gain significant interest from national retailers as the region continues to lead as one of the most successful recession recoveries in the nation. The area has received numerous awards and recognitions from national publications and, due to its increased attention, major retailers have started exploring the opportunities that exist. In addition to individual retailers gaining interest in the market, large investment groups are also figuring out ways to put down roots in the area. We have seen a number of large-scale renovations and ground-up builds started or planned in the market. This year initiated a lot of momentum, and we expect some of these big name projects and tenants to continue to drive activity into 2015.

In 2014, we saw a full range of retail activity – continued development of the new Bucktown Shopping Center in Grandville, reconfiguration of the former Centerpointe Mall on 28th Street SE, the addition of Tanger Outlets to the market, and planning for The Village at Knapp’s Crossing – all noteworthy projects to keep a close eye on. We expect these centers to aggressively drive retail commerce in their respective areas moving forward.

Anchored by Target and Cabela’s, Bucktown Shopping Center has further plans to expand in 2015 and recently attracted new tenants such as Panda Express and Tom+Chee, a restaurant concept featured

Grand Rapids |retail Market

BUCKTOWN | GRANDVILLE

Grand Rapids |retail Market

on television shows like ABC’s “Shark Tank” and the Travel Channel’s “Man vs. Food”. Furthermore, after more than $50 million in investment into the de-malling of Centerpointe Mall, previous owners sold the site for $68 million to an investment firm out of New York this past summer. The new owners plan to continue the progress already started and position it as one of the most prominent retail locations in West Michigan. The center has been rebranded The Shops at Centerpoint and, with the help of the leasing team at Colliers International | West Michigan, owners are currently in negotiation with tenants to continue making a dent in the vacancy rate. The mall, once considered all but dead, is inching closer to becoming fully leased. In addition to traditional mall retailers, food concepts such as Potbelly, 5 Guys Burgers & Fries, Saladworks and Red Olive have recently come to newly created outlots in front of the center, and we expect to see the remaining vacant space fill up quickly. Additionally, Tanger Outlets has begun construction at their newly acquired site south of Grand Rapids at US-131 and 84th Street SW, attracting tenants such as Nike, Polo Ralph Lauren, H&M, Old Navy, Under Armour, Banana Republic and many more. Finally, plans to revitalize

the retail project at Knapp Street NE and East Beltline Avenue NE are regaining steam as well. Detroit-area investor Lormax Stern, who started the Centerpointe Mall renovation, is currently in the planning stages of development and will be announcing more formalized plans early in 2015. Currently, the center is home to D&W Fresh Market and P.F. Chang’s.

The historically active retail corridors continue to garner much of the tenant interest; however, as these available spaces become absorbed, rental rates will continue to rise, lease term length will continue to grow, and new construction/renovation will likely be common. Landlords in tertiary retail corridors still struggle with attracting quality tenants, which has historically been the case, and 2014 was no different. These landlords must offer additional concessions and be willing to be flexible with tenants’ situations in order to fill space. Moving into 2015, this trend will continue. Rental rates will grow slightly in sought-after retail areas while rates in secondary corridors are unlikely to make any significant progress. Prominent tenants coming into the market will likely seek prime location and will have to pay a premium for it as


inventory declines. These tenants are less likely to settle for unimpressive retail centers, which will in turn keep those centers searching for occupants.

In 2015, we will be interested to see how the activity downtown will affect the retail market. With an increasing commitment to downtown residential living, we expect to see that translate into growth within the downtown retail scene. Many large residential projects are underway or planned in the Central Business District (CBD), with a current projection of doubling residential units within the next few years. As more and more people decide to live downtown, retailers will follow that demand. In addition, with the reimaging and repurposing of some of the major downtown office buildings, the

increased workforce activity will likely factor into retailers’ decisions to possibly locate downtown as well. Office space has been positively absorbed for the past 16 quarters, so retailers will be looking to take advantage of the demand that creates. Furthermore, with New Holland Brewing and Harmony Hall set to open new locations on Bridge Street NW and the Michigan Street NW Corridor Planning Initiative underway to decide how to modernize Michigan Avenue, we will likely see an expansion of the downtown retail market in both east and west directions.

The upcoming year is expected to bring more growth. It can’t be overstated how well West Michigan has rebounded since the recession or

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TANGER OUTLETS | COMING SOON TO BYRON CENTER


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how well consumer confidence in the region has driven retail expansion. The area is not only a bright spot for the State of Michigan, but for the Midwest and the nation as a whole. Local entrepreneurial-focused ‘seed funds’ like Start Garden continue to gain momentum and publicity and will lead to new and unique retail concepts in the area. We foresee continued interest from all types and sizes of retailers and expect 2015 to introduce even more new-development and redevelopment ideas. As always, absorption and rental rates will reflect demand, and we see demand continuing to grow. It is an exciting time to be in Grand Rapids.

“West Michigan is not only a bright spot in the State of Michigan, but for the Midwest and the nation as a whole”


Occupied Vacant

JD AUTOMATION | QUALITY DRIVE

In 2014, Holland continued to outpace the rest of the state in employment growth and overall unemployment rate, which translated into a positive but modest real estate market during the year. The industrial segment of the market continued to show strong signs of growth and expansion, while the office market was fairly stagnant. The retail market was bolstered by the announcement of a major redevelopment to a struggling shopping mall. Employment growth was a respectable 3.1% between Q2 2013 and Q2 2014, and the overall unemployment rate dropped 150 basis points in the same period to signify positive momentum (although much of the growth was due to the construction sector, which has dominated job growth figures all over West Michigan). The W.E. Upjohn Institute’s economic indicators were mixed coming out of 2014 for Holland, so we expect a stable but modest 2015.

The West Michigan lakeshore continues to generate strong industrial-sector attention. Already home to some of the largest and most prominent manufacturers in the region and country, 2014 produced some major headlines of both positive and negative news. Mammoth Inc., a heating and cooling parts supplier announced it would be shutting down its Holland location and relocating to Mexico. JR Automation, however,

quickly leased the Mammoth facility and continues strong growth. The company also has plans to add additional space in the Holland market. Gentex announced plans to invest between $30 million and $35 million in a new manufacturing facility in the area, which should be ready for production in 2016. The facility will be north of Riley Street and west of 88th Avenue. EBW Electronics has a 36,000-square-foot addition planned - doubling their current space - with plans to triple its footprint over the next few years. The company was ranked in the top 10 fastest growing companies in West Michigan by Inc. Magazine, and has grown by 166% over the past three years. The company is currently located at 13110 Ransom Street. Big Dutchman has doubled its 12,000-square-foot office space while adding up to 20 new employees. Furthermore, Holland Freight (formerly known as “USF Holland”) has moved out of its 50,000-square-foot offices at 750 E. 40th Street, and relocated into 85,000 square feet of state-of-the-art space at the former Johnson Controls/Prince Corporation headquarters at 700 Waverly Avenue. According to the company, the move will accommodate future growth and facilitate more efficient operations. Lastly, Visteon Corporation purchased the automotive electronics division of Johnson Controls Inc., securing more than 300 jobs in Holland. Overall, 2014 was a

Holland Market


“Interest rates are still at attractive enough levels to allow for financial flexibility, and sale and lease prices are at a stable level as well”

positive year for the industrial sector. With planned expansions for 2015, we see this segment of the market continuing to be a bright spot for the area.

The retail market received mixed reviews in 2014; however, some exciting news regarding Westshore Mall has consumers and retail tenants excited about 2015 and beyond. Currently, the 410,480-square-foot mall sits largely vacant with tenants struggling to hang on. Anchor tenants Younkers, Dunham’s Sporting Goods and JCPenny are joined by a handful of other retail tenants like GNC, The Buckle and Bath & Body Works; however, during the mall’s 26-year history, it has been plagued by financial turmoil and low occupancy. In an efforts to revitalize the center, investor Westshore Mall Investors, LLC plans to follow in the footsteps of the redevelopment efforts at Centerpointe Mall on 28th Street SE in Grand Rapids by de-malling the site, which will reduce the overall leasable square footage by roughly 25%, or approximately 100,000

square feet. The new site plan will include four new outlots, as well. In addition, the mall will be rebranded ‘The Shops at Westshore’ and will hope to attain the same level of success that The Shops at Centerpoint has seen, with nearly 100% occupancy roughly two years after project commencement. According to county records, Westshore Mall’s taxable value has plummeted from $6.25 million in 2004 to $1.58 million this past year. Just down the road from Westshore Mall, a handful of retailers plan to move into the vacant former Home Depot adjacent to Target. Dick’s Sporting Goods opened its first Holland location in October and absorbed roughly 60,000 square feet of the 113,000-square-foot space. HomeGoods, rue21, Five Below and Maurice’s have opened or plan to open locations in the center as well. These two retail locations will look to reenergize the US-31 corridor in 2015 and as activity in the area ramps up, we foresee additional concepts, specifically - restaurants - looking to join the area and take advantage of


WESTSHORE MALL

TRADE AREA HIGHLIGHTS

MALL FACTS

Westshore Mall is under new ownership and has an exciting new vision for the mall's direction. Plans are being developed to heighten the shopping experience with new interior décor, new exterior enhancements and new retailers.

Region:

Location:

GLA:

Anchors:

Key Retailers:

The Grand Rapids region has 1.0 million plus people and consists of the tri-cities of Holland, Muskegon & Grand Rapids

Holland, Michigan, approximately 40 minutes southwest of Grand Rapids.

360,000

Younkers, JCPenney and Dunham's Sporting GoodsKohl's and Hobby Lobby shadow anchor the mall.

Bath & Body Works, Victoria's Secret, GNC, Chuck E. Cheese, Kay Jewelers, Buckle, Maurice's and Claire's.

Trade Population 275,000

Average Household Income $63,000

Median Age 34.3

Growth rates exceeding the national average

More than 1 out of 4 households earn in excess of $75,000

Low cost of living equates to high disposable income

EBW ELECTRONICS | RANSOM STREET

“2014 was a positive year for the industrial sector, and with planned expansions in 2015”


the increase in traffic. Downtown Holland has continued strong occupancy rates both in the retail and office sectors. A healthy mix of national, regional, and local retailers provides a destination shopping experience.

The office market continues a very slow increase in occupancy. There were a handful of mostly smaller deals in 2014; however, a couple larger office deals were struck as well. Besides the Holland Freight deal, Holland Hospital signed a lease to move and expand their Urgent Care facility at Lakeshore Medical Campus on Riley Street.

Much like 2014, we see 2015 as a year of balance. Interest rates are still at attractive enough levels to allow for financial flexibility, and sale and lease prices are at a stable level as well. Companies excited about the Holland market will be able to find attractive deals; however, those still apprehensive about the economy and the future of the market will

likely remain on the sidelines until enough positive momentum sways them to make a move. Tenants will look to lock in lease terms to take advantage of the current conditions and hedge against any spike that may be coming; and landlords will be more than happy to stabilize their assets. The industrial sector will continue to exhibit strong activity, along with increases in rental rates. The shrinking available office inventory will likely bump rental rates ever so slightly. New construction is not likely to be prevalent; however, we would not rule it out completely. Despite rising construction costs, companies that are expanding will be forced to accommodate growth. Investors looking at the market will likely be focused on industrial property. While we do not foresee this becoming a trend, investment opportunities should exist in all property types, and will need to be uncovered.

WESTSHORE MALL

TRADE AREA HIGHLIGHTS

MALL FACTS

Westshore Mall is under new ownership and has an exciting new vision for the mall's direction. Plans are being developed to heighten the shopping experience with new interior décor, new exterior enhancements and new retailers.

Region:

Location:

GLA:

Anchors:

Key Retailers:

The Grand Rapids region has 1.0 million plus people and consists of the tri-cities of Holland, Muskegon & Grand Rapids

Holland, Michigan, approximately 40 minutes southwest of Grand Rapids.

360,000

Younkers, JCPenney and Dunham's Sporting GoodsKohl's and Hobby Lobby shadow anchor the mall.

Bath & Body Works, Victoria's Secret, GNC, Chuck E. Cheese, Kay Jewelers, Buckle, Maurice's and Claire's.

Trade Population 275,000

Average Household Income $63,000

Median Age 34.3

Growth rates exceeding the national average

More than 1 out of 4 households earn in excess of $75,000

Low cost of living equates to high disposable income

WESTSHORE MALL

The Kalamazoo real estate market had a steady 2014 highlighted by a few key transactions, most notably the opening of Western Michigan University’s (WMU) Homer Stryker M.D. School of Medicine and the ground breaking of the 13-acre site for the new Kalamazoo Valley Community College’s (KVCC) Healthy Living Campus – a partnership between Bronson Healthcare, Kalamazoo Community Mental Health and KVCC. The $45 million project will include three separate facilities: a Culinary/Health Careers building; a Food Innovation center; and a Mental Health clinic.

Kalamazoo unemployment peaked at 9.6% in July but has come back down to 7.4% and is now on pace with the rest of the state. The city had a year-over-year employment increase of 290 basis points, an indication that jobs are being created and the local economy is heading in the right direction. The ‘Information’ and ‘Construction’ segments of the market showed the largest gains, with year-over-year employment increases of 16% and 8.8%, respectively. Economic indicators tracked by Kalamazoo-based W.E. Upjohn Institute were positive coming out of Q3, suggesting

Kalamazoo Market

COSTCO | DRAKE ROAD


continued job growth. This points toward another steady year for commercial real estate in 2015.

The industrial market experienced a healthy amount of activity in 2014. Most noteworthy was Mann-Hummel, who expanded production by opening its South Portage facility at the former 220,000-square-foot Mueller Plastics building after investing more than $70 million. Fabri-Kal purchased the 73,534-square-foot former Imperial Beverage building, while the 38,496-square-foot light manufacturing building at 5737 East Cork Street changed hands in September. Toyota Tsusho America, Inc. sold their 190,000-square-foot facility located at 215 North Hill Brady Road in Battle Creek to WKW Erbsloeh North America, Inc., and also purchased Bowers Manufacturing and is further expanding its operations of aluminum extrusion, fabricating and anodizing at that facility. With West Michigan continuing to become a real destination for manufacturers from all over, we expect this segment of the market to continue growing in Kalamazoo.

In the retail market, highly anticipated Costco opened at the corner of Stadium Drive and Drake Road. The 148,000-square-foot facility also includes a gas station. Sky Zone leased approximately 23,000 square feet on Portage Road with a grand opening planned for January 2015. West Century Center at the corner of

West Main Street and Drake Road is undergoing a major exterior renovation and welcomes new tenants Verizon and Blaze Pizza, a create-your-own-pizza concept franchise. The Portage area welcomed Simply Mac to the Carillon Centre and Planet Fitness opened its second location in the former 16,000-square-foot Dunham’s Sports facility. Construction started in the spring for a 23,800-square-foot organic supermarket adjacent to Lowe’s on South Westnedge Avenue, and Earth Fare plans to be open by the end of the year. In 2015, we look to see a repositioning of the 98,000-square-foot Toys “R” Us Plaza. The retail center, which has long been home to Toys “R” Us, JoAnn Fabrics, Chuck E Cheese and Chili’s, now has a new owner. Los Angeles-based LBG Real Estate Companies, LLC purchased the property and plans to implement a major redevelopment of the property including a façade renovation and new signage.

The Kalamazoo office story has been a tale of two markets. The downtown market’s vacancy is in the single digits and, due to favorable lease rates, has shown positive absorption. In recent years past, on the other hand, the suburban office market has had a vacancy rate more than four times that of downtown. This was mainly due to two large office buildings – The Quads, a 400,000-square-foot complex, which had a vacancy rate of 75% up until recently and Building 298, a 365,000-square-foot

“Kalamazoo unemployment peaked at 9.6% in July but has come back down to 7.4% and is now on pace with the rest of the state”


complex, which currently has a vacancy rate of 73%. During 2014, however, Stryker expanded into another 100,000 square feet, reducing the vacancy at The Quads facility to roughly 50%. Other office users making moves included the Kalamazoo Community Foundation, who moved into the Arcus Depot Building at 402 East Michigan Avenue. After more than 40 years in the Comerica Building, the foundation decided it needed to adopt a more collaborative work environment by expanding its footprint by nearly 4,000 square feet and moving to a new building. This is following an office space trend that we are seeing permeate the market, with workers preferring open office floor plans and spaces to work together. Other large office-sector news involves a project we have been keeping our eye on for the past few years. The Exchange Building, originally planned for construction in 2013, came up short on funding and stalled. The developer, Phoenix Properties, is still planning to convert what is currently a parking lot on the southeast corner of Rose Street and Michigan Avenue into an eight-story building. It will have apartment and office space above a ground floor of retail. The project is expected to cost approximately $24 million and is expected to get back on track early this year. Another project we anticipate making headlines in 2015 is the former Kalamazoo Gazette building on South

Burdick Street. The 130,000-square-foot building was purchased by Granger Acquisition, LLC for $3 million in the spring of 2014. Plans for the building have not yet been released, but we expect to hear early in 2015. Finally, Downtown Kalamazoo Inc. recently announced it would begin looking for a developer to plan a project on an area of land currently owned by WMU. The site is roughly six acres and is bordered by Kalamazoo Avenue on the north, Walter Street on the south, Park Street on the east, and Westnedge Avenue on the west. The area has been unused for years, as it was once slated to have a sports and entertainment arena on it. The site would be great for a mixed-use building with residential, office and retail.

In 2015, we expect to see downtown Kalamazoo continue to grow. As the office market develops, we expect to see retail follow. Downtown Kalamazoo, Inc. is committed to making the city more walkable and thus will generate activity downtown. Rental rates will grow slowly as vacant space gets absorbed; however, with the addition of new inventory via development projects, we do not expect these rates to increase drastically. In all property types, vacancy should continue to push downward and landlords with stabilized assets will become popular with investors looking to break into the West Michigan market, specifically industrial facilities. Also, additions to Western Michigan University’s medical campus will drive people to the area and should be a stabilizing force for the community.

THE QUADS | 1901 ROMENCE ROAD


There’s a reason you chose West Michigan as the home for your business - we rise above the rest. At Colliers International | West Michigan, we believe property management is both art and science – combining leading-edge technology and market knowledge with the ability to anticipate needs and exceed expectations. Your interests come first; from the way we structure our reporting to our 24/7/365 service. With a fresh business perspective and exceptional customer service, we maximize value to help your business reach new heights - it’s what we do best.

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resources

Mlive.comBureau of labor statisticsGrand rapids Business JournalMiBizrightplace.orgwoodtv.com

Forbesnational retail Federationrapid Growth Mediacommercial alliance of realtorsreal capital analytics

Colliers International is the leader in global real estate services, defined by our spirit of enterprise. Through a culture of service excellence, and a shared sense of initiative, we have integrated the resources of real estate specialists worldwide to accelerate the success of our partners.

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coMMunitYWe are deeply committed to the communities within which we operate, and to building sustainable business practices, environments and workplaces. We show compassion to those in need and we value and respect each other’s differences and individuality.

FunWe are serious about our work but don’t take ourselves too seriously. We value optimistic, energetic and dynamic work environments that emphasizes social as well as business interaction. We are successful because we enjoy what we do.

Missions & values


resources

Fifth Third Bank. Member FDIC.

PEOPLE BEING CURIOUS IS HOW THINGS GET DONE. IT’S THE SAME FOR BANKERS.Anything that ever got accomplished began with people asking: “What if?” Challenging themselves. Challenging the system. At Fifth Third Bank, “What if?” is one of our favorite phrases. As a proud supporter of Colliers International West Michigan Economic and Commercial Real Estate Forecast, we support those who aren’t afraid to reach, try and ask.

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ECONOMIC & COMMERCIAL REAL ESTATE … & COMMERCIAL REAL ESTATE FORECAST REPORT 15th annual Colliers...

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