A national real estate research firm recently reported that the Grand Rapids region has the lowest industrial vacancy rate among the 50 largest industrial markets in the country, validating brokers’ and builders’ experience in the extremely tight market.
CoStar Group Inc. last month published the report, which states the region’s 2.5% industrial vacancy rate across 192 million square feet of inventory is the lowest among the 50 largest industrial markets in the U.S., and less than half the national average of 5.7%. The report covered properties across metro Grand Rapids and included all or parts of Barry, Kent, Montcalm and Ottawa counties.
Miami, Fla., had the second-lowest industrial vacancy rate, followed by Detroit at just under 4%.
According to CoStar, the Grand Rapids region’s inventory has grown by more than 10 million square feet, or 5%, since 2019. That 192 million-square-foot inventory is larger than markets in San Antonio, Texas, and Las Vegas, according to CoStar, which tracked industrial building and leasing activity in greater Grand Rapids and the lakeshore from Holland to Muskegon.
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Grand Rapids’ industrial vacancy rate has hovered around 3% for the past few years, continually outpacing other parts of the commercial real estate market.
In their most recent market reports for the fourth quarter of 2023, local brokerages reported similar vacancy rates as CoStar across metro Grand Rapids to the lakeshore, from Holland to Muskegon. Net absorption also turned positive at the end of 2023 after a downward slump in the third quarter of 2023. While headwinds include higher interest rates and building costs, the West Michigan region in general has taken a conservative approach to avoid overbuilding, according to brokers.
Tim Van Noord, principal and senior vice president at Grand Rapids-based Advantage Commercial Real Estate, said it can take “several months, if not years” to find industrial space for prospective tenants.
“It was surprising to me at first from a larger contextual standpoint, but not from the perspective of working in the market every day,” Van Noord said of the CoStar findings ranking West Michigan with the tightest industrial market in the country. “Having done some deals across the country this year for companies outside of the market looking to do a deal in West Michigan, they are all very surprised at how limited our inventory is right now.”
That Grand Rapids has a lower industrial vacancy rate than Los Angeles, Calif., is especially noteworthy given L.A.’s status as a major port city and one of the most populous places in the country, Van Noord said.
However, large markets have historically attracted more attention from institutional capital and investment committees that aren’t always familiar with Grand Rapids, Van Noord said. This has led some of the bigger cities to overbuild in recent years, Van Noord added.
“Combine that with the historically Dutch mindset of a low appetite for risk and developers not wanting to build something on spec without a tenant in play,” Van Noord said.
Adrian Ponsen, director of U.S. industrial analytics at CoStar, largely shared Van Noord’s sentiments on larger cities overbuilding.
“Sub-3% vacancy rates are very rare across U.S. markets today,” Ponsen told Crain’s Grand Rapids Business via email.
Vacancy rates dipped below 3% in some major cities in 2021-22, but in many markets the rates have since risen back to the 3.5-5% range, Ponsen said.
“In theory, developers should be building more industrial projects in West Michigan,” Ponsen said. “But commercial real estate construction lenders that fund projects across the U.S. tend to focus on the nation’s largest or fastest-growing population centers, which rightly or wrongly, they perceive as less risky.”
As well, a lack of developable land for industrial projects is contributing to the low vacancy rate, coupled with an “immense need in this area of the state” for companies wanting to expand, Brent Gibson, president of Construction Simplified, recently told Crain’s Grand Rapids Business.
The Grand Rapids-based construction firm is in the process of assembling industrial land to build up its industrial project pipeline, and is hooking up utilities, securing proper zoning and incentives on several parcels, Gibson said.
“I don’t think we’re unique in getting property ready for industrial (projects),” Gibson said. “There is so little of it, because when something comes up it gets snapped up right away.”
While several new industrial build-outs are occurring throughout West Michigan, Van Noord doesn’t expect those to make much of a dent given the extremely limited supply.
The total square footage of industrial properties in Grand Rapids, on a percentage basis, has only grown at about half the pace of U.S. industrial space as a whole over the past five years, Ponsen said.
Several developers in West Michigan have taken on quasi-speculative industrial projects over the years amid low supply and high demand, but many also have backed off spec projects as interest rates and construction prices have made projects harder to pencil out.
One exception is Vision Real Estate Investment, which currently has the largest industrial spec project under construction in the region at 9765 Division Ave. SW in Byron Center. The 126,000-square-foot Bridge Business Center is still under construction and has garnered “a lot of interest, and quite a bit of showings,” said Leigha Keating, development coordinator at Vision Real Estate.
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