Commercial Darwinism

Development trends that help shape our city…

“The importance of commercial development to the economy is well established, and the industry’s growth is critical to creating new jobs, improving infrastructure, and creating places to work, shop and play.”

-Thomas Bisacquino, President and CEO, National Association of Industrial and Office Parks (NAIOP)

In nature, the ability to adapt is what allows species to survive. It is much of the same story with cities and the buildings that make them up. Development and re-development has allowed Grand Rapids to continually reinvent itself, re-positioning commercial property to better meet modern day demands. The process is fluid, however, ebbing and flowing with a variety of market forces. Below I will briefly explore three development trends and how they are influencing what is being built.

CREATING A DESTINATION

One of the most noticeable trends in development is the allocation of physical space to a variety of uses. The combining of forces, if you will, to create a destination that people want to visit, shop at, or work in. Talent attraction and retention has become paramount in today’s competitive business environment, and commercial tenants actively seek workplaces in which employees have the ability to engage in activities outside of sitting at their desk. In office buildings, amenities like workout facilities and cafes were not unheard of in the past; but are expected in true Class-A buildings today. Many recent development projects have gone beyond that, mixing residential with office space and first floor retail. Projects like the proposed Studio C! development even include entertainment, community spaces, and a parking component. Rockford Construction’s Barley Flats include both residential and office space, and are connected to New Holland Brewing’s The Knickerbocker; while Rockford’s Meijer-anchored mixed use development down the street is planned to include apartments, office, traditional retail, grocery, and the new home for the West Michigan Center for Arts + Technology (WMCAT). Those wanting to feel part of a community benefit from the increased activity that other adjacent uses in the development drive.

SHIFTING FOCUS

The apartment sector has headlined much of the local development activity over the past few years. In 2015, the City commissioned a New Jersey-based consulting firm to put together what turned out to be a 150-page market study analyzing the future demand for residential housing units in and around downtown. The firm concluded that before the year 2020, the city could potentially absorb north of 3,000 new residential rental units. Since then, approximately 1,000 units have been delivered and approximately 2,000 are either planned or currently under construction. This means we are already approaching the unit goal halfway through the given time frame. Keeping in mind the long lead times required for completion of these projects, if we all of a sudden reach that magical supply/demand equilibrium, and new residential units are no longer absorbed at our current pace, it is likely that a few projects will be stuck underway with a much different leasing environment than anticipated. Because of this, developers are preemptively pumping the breaks and pivoting towards other uses ahead of this inflection point (following the previously mentioned theme). Two marquee projects downtown have recently announced a shift in focus from apartment units to hotel space; and although we do not see the development spigot turning off for the apartment sector, we expect a much more reserved approach in the near-term.

CONSTRAINTS

Even the most well planned development projects face constraining factors that limit the ability to see a project through from conception to completion. Cost and availability of materials, financing, and government incentives are a few of these constraints; however, a lack of skilled labor is one we hear most often right now. Construction companies have a limited number of teams available to deploy on these projects and must be selective about which partnerships to forge. Recently, Steve Huizenga from Allied Mechanical Services said his company is running at a labor shortage of about 20 percent. The bidding process has in turn become much less competitive, to the point where construction companies decline to submit bids on projects they might have in the past. Those who do submit bids can price themselves where developers must pay a premium to secure services. In turn, this has moved some projects from the green zone to the red zone, or at the very least extended timelines, raised overall development costs, and created upward pressure on rental rates.

PROJECT TO WATCH

If the interest shown in redevelopment site 201 Market Avenue SW is any indication, development in West Michigan is not only alive, it is remaining healthy and active through its evolution of planning and execution.

In early February of this year, the City of Grand Rapids issued a formal Request for Qualifications from development suitors for the 15.8-acre site at 201 Market Avenue on the city’s Southwest side. Last month the City announced it had formal responses from five different groups, all of which will be working on and submitting actual proposals over the coming months. Prior to this qualification request from the City, the site had garnered little development interest outside of an unrealistic multi-billion dollar mystery project proposed nearly a decade ago.

What is interesting about this is who these suitors are. At first glance, we see that only one group is from the area. Rockford Construction, who has been an extremely active participant in the recent downtown development cycle, undoubtedly has the experience and community commitment to lead such a project; however, the other four firms all bring a unique portfolio of experience with perspective that is new and different.

A new era is dawning, in which regional players bring fresh ideas and new capital to the market and start to legitimately compete against the local development firms who kept such a good grip on the bootstraps of our city over the past decade. This, however, is a double edged sword and many members of the community, as well as government officials, want to renew the focus on building equity in city developments, especially ones that will be on currently city-owned land. This means detailed conversation about what to include and what not to include, as well as which partners to involve.

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