The Des Moines Commercial Real Estate Market Remains Stable Despite Headwind
CB Richard Ellis/Hubbell Commercial, the leading commercial real estate broker in Iowa, announced today results of its 11th annual Greater Des Moines Real Estate Market Survey prepared by Frandson & Associates, L.C. and the 38th annual Metro Des Moines Apartment Survey, prepared by Carlson, McClure & 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 generally steady. While indications fully confirm an economic slowdown on a macro level, Des Moines is maintaining its stability. Expert panelist members from CB Richard Ellis/Hubbell Commercial included: • Kyle Gamble, CCIM, SIOR Senior Vice President, Managing Director Market Overview • Tom DeWaay, CCIM Vice President Multi-Unit Housing Market Analysis • Heath 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 Vice President - Private Client Group Investment Analysis • Tim Sharpe, CCIM, SIOR Vice President - Private Client Group Investment 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 2006, 2007 and 2008 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 “The expanding owner-occupied building market has outpaced the competitive market in regards to square footage growth in recent years," states Heath Bullock. “Corporate owner-occupied office buildings make up approximately 48% of the local market. This trend will continue to impact occupancy rates in the Central Business District and West Des Moines over the next 36 months.” Highlights: • New construction of speculative office space totaled 167,500 square feet in 2007, a three year low for the Des Moines market. • Occupancy rates are remaining steady as lease rates slowly rise. • The Des Moines market is now at 25.9 million square feet of office space, averaging a growth rate of 500,000 square feet per year. INDUSTRIAL “Following two dynamic years where the Des Moines warehouse market absorbed 1.5 million square feet of space per year, activity leveled off considerably in the past year, and only 230,000 square feet were absorbed," states Bob Stewart, industrial expert for CB Richard Ellis/Hubbell Commercial. Highlights: • The manufacturing sector rebounded strongly this past year overcoming the past two years of lackluster performance. • The amount of new construction in the manufacturing sector has leveled off considerably over the past year. • By far the largest industrial transaction in the central Iowa market was the 330,000 square foot wind blade manufacturing facility being constructed in Newton, Iowa. RETAIL “Stable market fundamentals in employment and job growth coupled with conservative development in response to demand from retailers indicate continued stability in the retail real estate market,” states Colleen Johnson. Highlights: • The overall greater Des Moines retail market grew by 484,000 square feet in 2007 • The regional mall picture is strong with common area renovations and an exciting new tenant, Steve & Barry's, resulting in increased occupancy at Southridge Mall. Jordan Creek Town Center has achieved 98.5% occupancy in its 3rd year of operation. • 16 new neighborhood and community centers were added throughout the metro area in 2007. • Significant new developments on the drawing boards for 2008 include a Super Wal-Mart for Grimes and a Bass Pro Shops for Altoona. INVESTMENT PROPERTIES “Investment sales of commercial real estate have soared over the last 5 years due in part to abundant and inexpensive debt made available by the structured finance or Commercial Mortgage Backed Securities market,” states Linda Gibbs. “The first 3 quarters of 2007 were no exception.” Highlights: • 2007 experienced $337 million dollars in investment sale transactions over $500,000 in Polk County, a decrease of 8.5% over the previous year. • The number of transactions over $500,000 in all commercial segments was down, however the average sale price was higher. • There is a disconnect between sellers’ expectations and market realities, creating a large bid gap between buyers and sellers • Although the current situation is serious, financial markets tend to over react. Commercial real estate fundamentals continue to remain strong. • The recent real estate slowdown is a return to normalcy. • Industrial investment sales volume was up significantly in 2007 due to two large transactions. • Cap rates declined in 2007 in all investment segments in Polk County with the exception of retail, which remained the same. “The tightening of the debt market and retreat of high leveraged players in the recent months has provided a bit of relief to the traditional investors in the commercial investment markets but it is important to note that the recent real estate slowdown is a return to normalcy, rather than a deviation from the norm,” states Tim Sharpe. “2008 will be a year of uncertainty but also a year of opportunity. “ MULTI-UNIT HOUSING “Overall vacancy rates for the Greater Des Moines apartment market have increased slightly from 8.1% to 8.5%,” states Tom DeWaay. “However, most apartment owners are expressing cautious optimism due in part to increasing rental rates and decreasing landlord concessions.” Highlights: • The vacancy rate for traditional market rate apartments in the Central Business District is 4.7%. However, condominium projects that have or will convert to rental units due to the weak condo and housing markets will impact vacancy rates. • Apartment transactions were very strong in 2007 with two large portfolio sales taking place, including the Clarke Family Portfolio sale to Hubbell Realty Company. This portfolio included 1,681 rental units located in Des Moines, Iowa and Sioux Falls, South Dakota. For more information on CB Richard Ellis/Hubbell Commercial, or for a complete copy of the 2008 Market Survey and the 38th Annual Apartment Market Survey, call (515) 224-4900, or visit www.cbrehc.com.