A developer’s $32.7 million plan to convert vacant downtown Kalamazoo office space into a mixed-use residential project continues a pre-pandemic strategy to combat low demand for large-scale offices while bringing people into the city’s core.
PlazaCorp’s plan to convert a vacant historic building at 203 N. Rose St. into an 82-unit mixed-use residential project is one of several adaptive reuses of vacant offices in downtown Kalamazoo. Other recent projects involve Kalamazoo-based developer and property manager Treystar’s conversion of multiple ground-floor spaces into retail as office demand shrinks.
“Office conversions have been going on for more than a decade in downtown Kalamazoo because the real demand is for residential,” said Rob Peterson, owner of Dover Birch Real Estate Services. “First (developers) started with vacant buildings and when they ran out of vacant buildings they started taking mostly Class C office spaces. Now we’re starting to see that driven by low (office) demand.”
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Peterson in late May released data documenting occupancy levels across downtown, which found an office vacancy rate of 15.2%, up slightly from the 2023 office vacancy rate of 14.7%. The vacancy rate this year is also down from 2021 and 2022, which were at 18% and 18.6%, respectively, according to Peterson’s research. Peterson’s report excludes properties owned by municipalities, Bronson Healthcare and Zoetis, he said.
He attributes the present downtown office vacancy rate to some small office spaces being leased and office conversions into other uses, which is expected to continue until developers run out of large-scale offices that are freed from long-term leases, Peterson said.
“We’re going to see more ground-up residential development in downtown Kalamazoo,” Peterson said. “There are some larger vacant parcels, some under control by the city and some are under control by larger developers, and I expect we’ll see more infill development.”
Antonio Mitchell, the city of Kalamazoo’s community planning and economic development director, said the city is working with “a number of developers” looking to convert their office space as interest grows.
“After COVID, our office base started being adjusted and a lot of folks were working from home and I don’t think it’s fully bounced back,” Mitchell said.
Rick DeKam, principal at Portage-based Midwest Realty Group, said while the future of the broader Kalamazoo region’s office market is unpredictable, he sees plenty of office buildings sitting vacant.
“What I’ve also been noticing are buildings that have not been filled that are now starting to drop off the market that are still vacant,” DeKam said, as office tenants move out but owners keep the vacant spaces off the market while they wait for market conditions to turn around.
“They think it’s a bad time and there will be a better time later,” DeKam said. “I think it’s honestly just going to get worse before it gets better and there will probably be some creative alternative uses.”
Eyes on event center
As property owners grapple with the soft office market, downtown Kalamazoo may be poised for a boost as Greenleaf Companies moves forward with plans for the $300 million, 320,000-square-foot Kalamazoo Event Center.
The project is eyed for two city blocks bounded by Westnedge Avenue, Kalamazoo Avenue, Park Street and Eleanor Street, and would host nearly 240 events, shows, concerts and community sporting events a year.
The arena also would be the future home of Western Michigan University’s men’s hockey team and men’s and women’s basketball teams, as well as the Kalamazoo Wings professional hockey team.
DeKam noted that Kalamazoo’s focus on entertainment facilities and bringing residents downtown could produce spinoff benefits for downtown commercial real estate.
“It’s important for municipalities and communities to understand that in order to have a vibrant downtown, you have to have two things: activities and a core population downtown to sustain those activities,” DeKam said. “Once you have those two things you have a wheel that’s turning to attract other people and you’ll have businesses that can service the general population and the population that lives downtown.”
Mitchell said he hopes to see about 10 more restaurants and entertainment spaces downtown to support both the arena and additional residents coming downtown with the influx of housing projects, Mitchell said.
Andrew Gyorkos, principal broker at Kalamazoo Commercial Real Estate, expects the event center to benefit downtown because of the facility’s connection to Western Michigan University.
“What we have going for us in the county is Western Michigan, which has a medical school, and we have big employers like Pfizer, Striker and Zoetis,” Gyorkos said. “That helps keep us more buoyant through tough times, we’re fairly stable in that sense.”
While Gyorkos has been getting a few more calls about his firm’s properties downtown near the event center site, the project is yet to directly spur new development.
“We are starting to see some infrastructure construction start, but it is still four to five years out,” Gyorkos said. “Everyone is still excited about it, it is real, but you can’t monetize something that’s coming in four years.”
The arena construction, along with extensive road work that is set to continue in downtown Kalamazoo for the next several years to slow traffic and make downtown more walkable, will be a short-term pain for downtown, Mitchell said.
“This work will make downtown more walkable and bike-friendly, moving toward hopefully having scooters in our downtown as well, but we have to create a pedestrian friendly environment for that to happen,” Mitchell said. “Hopefully in the future you’ll see more people moving downtown instead of mostly just cars.”
Long term, Peterson sees plenty of opportunity for downtown Kalamazoo, especially given the city’s focus on infrastructure investment, he said.
“I haven’t seen this much opportunity in downtown Kalamazoo in a long time,” Peterson said. “I’m bullish on downtown.”
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