GRAND RAPIDS, Mich. (WOOD) — Most of West Michigan’s economy could rebuild to pre-pandemic levels by the time we celebrate 2022, but it will likely take longer for restaurants, bars, arts and entertainment venues, an economist says.
Professor Paul Isely, Ph.D., of Grand Valley State University’s Seidman College of Business, released his economic predictions Thursday. He said before any rebound can take place, we need to “rid fear of the virus,” which he says we may have a shot at by summer.
While 2020 was full of surprises, a good one came from the federal government.
“They really gave a ton of fiscal stimulus,” Isely said.
He said people had about twice the income they normally have sitting in their accounts at the end of the year. With all that money floating around, Isely said the risk of rising prices and interest rates heading into 2022 is high.
HOUSING REMAINS HOT
One sector relatively untouched by the pandemic is residential real estate. Isely said home sales have remained strong, even in Grand Rapids’ 49503 zip code.
“People weren’t fleeing downtown… they were buying in,” he said.
Real estate experts with Colliers International say the shift to working from home and a lack of events and amenities downtown may spur a “micro-migration” from Grand Rapids’ core, but any exodus from the growing city will likely be smaller than the national rate.
OFFICE UNCERTAINTY HITS FURNITURE INDUSTRY
Manufacturing also picked up after the industry was allowed to restart. Isely said the industry is mostly out of the hole, with orders coming in as soon as the shutdown ended in May.
Colliers said e-commerce, trucking, cleaning and last-mile delivery companies have done well throughout the pandemic.
One exception is the furniture industry, which has slowed down even more. Isely said the decline in demand has a lot to do with uncertainty about what offices will look like in the coming years.
Scott Morgan with Colliers International said office vacancies in downtown Grand Rapids are below 10% right now, which is the best rate in recent history.
He said while the pandemic accelerated the work-from-home trend, a lot of business owners he works with value workplace culture and are “chomping at the bit” to reunite their workforce.
Colliers International says while nationally feared subleasing isn’t an issue in Grand Rapids so far, a couple national companies are taking a “wait-and-see” approach, extending their existing leases by a year instead of renewing for five years.
Morgan said a silver lining to the pandemic-prompted office shakeup is that businesses will likely back off creating a high-density offices without enough parking, elevators, restrooms or ventilation.
”I think a lot of this has put a hard stop to this ridiculousness and now I think it’s going to be more normal with people spaced out more,” he said.
Colliers expects those looking for office space will focus on lower density areas with spacious buildings that have updated air circulation systems.
RESTAURANT AND RETAIL REBUILD
Most of the Colliers team expects restaurants to rebound before offices do. However, Isely said it could take two to four years before the demand for bars, restaurants, arts and entertainment can make up for the losses during the pandemic.
Chris Prins from Colliers said national chains seem to have figured out creative solutions for surviving but pivoting is hard for local businesses that don’t have a drive-thru.
“You’re not going to go to a fancy restaurant just to pick up a meal and take it home. You go for the ambiance,” he explained.
Prins thinks 15% to 20% of Grand Rapids restaurants could close, in part because of their dependency on downtown events.
“I don’t think we have enough residential (customers) downtown to support the retail in our city,” he said.
The shift to online shopping has also sped up, threatening demand for brick-and-mortar retail space.
In the third quarter, Grand Rapids’ retail vacancy rate was just below 5%. If businesses can’t get a break on rental rates or secure more funding, Colliers expects the rate of empty retail space to jump to 8% in the first or second quarter of this year.
Isely said businesses that can make it to this summer will have less competition and higher market margins.
“This boils down to that survival of the fittest,” he added.
ROARING 20s REVISITED?
When the Spanish flu pandemic ended, business boomed. Colliers is hoping history will repeat itself this year.
“We’re thinking that this summer is going to be a very robust tourism season (for the lakeshore),” said Drew Durham of Colliers.
While air travel is still down drastically, people from Illinois, Indiana and Ohio are finding their way to Michigan’s coast.
Isely expects a strong second half of the year and a good time for businesses to open before interest rates and prices rise.
“If you have the capital to do it, the means to do it, now is the time,” he said.
One challenge booming businesses will face is finding workers. Isely said unemployment is below 4% in Kent and Ottawa counties because an entire class of workers has left the market.
“Retirees say ‘I’m done. Why should I stay?’” he explained.
The workforce also shrank as shuttered day cares and virtual learning pushed more parents out of the job market and into stay-at-home caregivers.
Isely expects the nation to be down about 2 million workers by the end of this year. He anticipates it’ll take another year to fill the openings.