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Des Moines Commercial Real Estate Market Grappling to Find Stable Footing and Direction, Brokers Say

WEST DES MOINES, Iowa (February 25, 2010) – CB Richard Ellis/Hubbell Commercial, the leading commercial real estate broker in Iowa, announced today results of its 13th annual Greater Des Moines Real Estate Market Survey prepared by Frandson & Associates, L.C. and the 40th annual Metro Des Moines Apartment Survey, prepared by Carlson, Gunderson & Associates, Inc. Results of the presentations by CB Richard Ellis/Hubbell Commercial professionals indicate that the main property types that make up the greater Des Moines market (Office, Retail Industrial, Multi-Unit Housing, and Investment) are grappling to find stable footing and direction in the midst of weak demand and limited credit. Expert panelist members from CB Richard Ellis/Hubbell Commercial included: • Heath D. Bullock, CCIM, SIOR Vice President Office Market Analysis • Bob Stewart, SIOR Senior Broker Associate Industrial Market Analysis • Colleen Johnson Vice President Retail Market Analysis • Linda Gibbs, CCIM, SIOR Senior Vice President - Private Client Group Investment Property Analysis • Tim Sharpe, CCIM, SIOR Senior Vice President - Private Client Group Investment Property Analysis • Rick Krause Senior Associate Multi-Unit Housing Analysis COMMERCIAL MARKET Conducted for CB Richard Ellis/Hubbell Commercial by Frandson & Associates, an appraisal and consulting firm, the commercial real estate market survey analyzes office, flex, industrial and retail space by geographic market area in Greater Des Moines. Information was gathered from owners, managers and brokers throughout the Greater Des Moines area during the first quarter of 2008, 2009 and 2010 to provide business and city leaders current and useful commercial real estate information such as lease rates, occupancy trends and major events impacting their local commercial real estate decisions. OFFICE “With the exception of a few major projects such as the completion and occupancy of the 250,000 square foot John Deere Credit building addition and the pending impact of the delivery of the Aviva USA and Wellmark building the office market stagnated this past year,” states Heath Bullock, CCIM, SIOR, office expert for CB Richard Ellis/Hubbell Commercial. “Since the first quarter of 2009 the market only added 363,482 square feet of new office space compared to 1,028,031 square feet added during the previous 12 months.” Highlights: • The local office market vacancy rate hit 11.1% this year, a slight decrease of 0.7%. Des Moines continues to outperform the national market, which now stands 17.5% vacant. • The major office submarkets consisting of the CBD Core and Western Suburbs posted only minor vacancy increases standing at 7.9% and 12.7% respectively. • The entire market posted only marginal positive absorption of 150,827 square feet during 2009. • The competitive office market, consisting of buildings considered to compete for tenants has experienced consistent decline in occupancy levels over the past three years to 79.4% in the first quarter of 2010. We expect the trend to continue into 2011. INDUSTRIAL “The warehouse and manufacturing markets in greater Des Moines went virtually unchanged over the last 12 months. Developers are not adding new product to the market, and occupiers are holding steady on their real estate positions,” states Bob Stewart, SIOR, industrial expert for CB Richard Ellis/Hubbell Commercial. Highlights: • Warehouse and manufacturing occupancy remains healthy at 91.2% and 95.4% respectively. The Greater Des Moines industrial market continues to outperform the downward trending national occupancy rate of 86.1%. • The industrial sector only grew by 101,983 square feet, or less the 0.25%. • Expect very little if any new speculative construction until economic conditions and demand improves. RETAIL “A lack of consumer confidence combined with significant supply of neighborhood and community centers has resulted in the highest vacancy levels in the 13 years of tracking this specific market category,” states Colleen Johnson, retail expert for CB Richard Ellis/Hubbell Commercial. “Consumers need to start spending consistently on items beyond basic necessities to have a positive impact on this market sector.” Highlights: • The neighborhood and community center category continued its occupancy decline to 75.3% in 2010, down from 82.1% occupied in 2007. • The big box market category continued its strong performance with a 95.1% occupancy rate. For the fourth consecutive year, absorption of big box retail space was significant with 287,479 square feet absorbed during the past 12 months. • Overall occupancy of the four regional malls is 88.0% remaining unchanged from 2009. • Retail sales dropped an estimated 5.8% from 2008 to 2009. INVESTMENT PROPERTIES “For those of us that thought 2008 was a terrible year in the annals of US commercial real estate investing, 2009 turned out to be the worst year of the decade for the industry. 2009 will be remembered and studied for some time to come as one of the most challenging economic periods in modern history states” Tim Sharpe CCIM, SIOR investment properties expert for CB Richard Ellis/Hubbell Commercial. “The Midwest tertiary markets are still showing relatively strong stability and resilience compared to the rest of the country” commented Linda Gibbs, CCIM SIOR investment properties expert for CB Richard Ellis/Hubbell Commercial. In the Midwest tertiary markets, which includes Des Moines, multifamily and retail cap rates decreased from 2008, while industrial and office crept up. On the national scene cap rates increased for all investment types. “For every property type, the final quarter of 2009 marked an upturn. The direction clearly is more positive than one year ago, when the bottom was nowhere in sight,” Gibbs stated. “Although the industry and the overall economy still face an array of hurdles and no one seems to be giddy with optimism-- the industry is starting 2010 with more clarity and a lot less fear than 2009” commented Sharpe. Highlights: • Transaction activity is increasing. U.S. property sales posted their first quarterly increase in two years in the 3rd quarter and achieved another gain in the 4th quarter. It is anticipated that the volume of sales will more than double in 2010. • Sales transactions for all investment property types over $500,000 in the Greater Des Moines market declined by 15% from $192M in 2008 to $163M in 2009. • Capitalization rates increased in all property types nationally. • Crowds of recently formed distress funds raised a whopping $75 billion dollars in equity to buy distressed property in upcoming year(s). • It is estimated that only 13.4% of distressed loans have been resolved MULTI-UNIT HOUSING Conducted for CB Richard Ellis/Hubbell Commercial by Carlson Gunderson & Associates, an appraisal and consulting firm, the 40th Annual Apartment survey analyzes the apartment market by geographic area in metro Des Moines. Information was gathered from owners, managers and brokers throughout the Greater Des Moines area during January 2010 to provide business and city leaders current and useful apartment market information such as rental rates, occupancy trends and new construction data. Rick Krause, multi-unit housing expert with CB Richard Ellis/Hubbell Commercial states, “Due to income tax credits for home buyers and 6.5% unemployment within the Des Moines Metropolitan area, up from 4.4% a year ago, landlords are dealing with a smaller tenant pool to pick from. Due to difficult economic conditions tenants are choosing to double up or move in with relatives. The apartment market needs to see tax credits expire and job growth in order for occupancy to improve”. Highlights: • The Des Moines metropolitan Apartment vacancy rate rose from 7% in 2009 to 8% in 2010. • The central business district posted the lowest vacancy in the metro coming in at 5% vacant. • The average change in rental rates remained relatively flat over the past 12 months ranging from a decrease of .59% for efficiency units to an increase of 1.59% for two bedroom units. • The vacancy rate of low income housing tax credit projects is 5.6% • For the coming year, construction is underway or permits have been issued for 825 units consisting of 331 conventional units and 494tax credit units. For more information on CB Richard Ellis/Hubbell Commercial, or for a complete copy of the 2010 Market Survey and the 40th Annual Apartment Market Survey, call (515) 224-4900, or visit www.cbrehc.com.

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