Commercial real estate experts optimistic despite work from home uncertainty

T.West Michigan’s commercial real estate market has been relatively stagnant during the pandemic-induced shift to remote working, but advisors see room for optimism ahead of the vaccine roll out and with several office contracts recently signed.

“Whatever industry we’re talking about, I think the driving force is people’s attitudes – which used to be fear, but that’s no longer the case,” said Chip Bowling, senior advisor and director at Bradley Co., was pent-up and wants to return to a social environment. “

Amid the ongoing uncertainty about the future of office space, Bowling expects many office tenants to make long-term decisions towards the end of the first quarter of 2021.

The Office Insight Report from global real estate services company JLL Capital Markets for the fourth quarter of 2020 showed a market-wide vacancy rate in Grand Rapids of 10.1 percent, an increase of 0.4 percent over the previous year. The leasing volume at the end of the year fell by 60.1 percent from 2019. The average direct asking rents fell by 1.3 percent.

“There will be an increase in sublet space as some of these office users re-evaluate their office space and work from home,” said Harrison West, senior research analyst at JLL. “Some companies will try to lose some of their office space, resulting in an increase in sublet space in Grand Rapids and Detroit. Not on the coastal market scale, but we’re seeing an increase in subletting. ”

Subleased office space has a price reduction of around 10 to 20 percent below the market rents. This is based on a market report by Bradley Co. Sublease agreements currently include services such as short-term rental agreements, furniture, rent reductions or subsidized tenant improvements.

This increase in sublet space has so far not had a material impact on landlords, with most receiving most of their rental payments, according to the Bradley Co. report. However, sublet space will soon put pressure on market prices and could ultimately put pressure on landlords to lower their prices if they want to compete for new tenants in the open market.

Organizations looking to work from a physical office in the future will need amenities that help attract talent, said Jeff Tucker, senior managing director, brokerage and principal at Bradley Co.

“Equipment in an office environment has to be as good or better than an employee’s house,” said Tucker. “A convenience workplace attracts people who prefer to be personal and engaging, as opposed to having a suburban office and living in a suburb where you are more likely to work from home.”

Companies that drive change

Drug maker Perrigo Co. plc’s plan to relocate its North American headquarters to downtown Grand Rapids could cause other similarly large strides from businesses, Bowling said.

Insurance giant Acrisure LLC has also relocated its headquarters to Studio Park in Grand Rapids and is about to move into the new location.

“We anticipate that the companies that come downtown will have a competitive advantage in recruiting young talent,” Bowling said.

Downtown is still a sought-after location, despite businesses closing in 2020 due to pandemic restrictions – specifically as the city activates the riverside with several planned developments, including an amphitheater, Bowling said.

A similar trend could be playing out in smaller cities like Holland and Muskegon by attracting larger companies for office space to their inner city, Tucker said.

“These small communities are finding they have these amenities and parts that make people want to join this company and come to work,” Tucker said.

JLL’s Office Market Report also indicates that Integro Builders LLC is moving its office from Chicago to Grand Junction, east of South Haven. This is an example of a company considering an affordable office alternative in the work from home trend.

“We’re also starting to dense the number of people in an office and to spread the number of people out,” said Bob Horn, JLL senior vice president. “We’re seeing some footprints stay as they were, but with fewer people.”

Office trends are difficult to predict, but Horn expects the market to be weak for the next 18 months.

“It’s not a one-size-fits-all approach,” said West of JLL. “Some companies realize that working remotely works for them; others need to be face-to-face in a collaborative office.”