Des Moines Commercial Real Estate Market In Transition
WEST DES MOINES, Iowa (February 24, 2011) – CB Richard Ellis/Hubbell Commercial, the leading commercial real estate broker in Iowa, announced today results of its 14th annual Greater Des Moines Real Estate Market Survey prepared by Frandson & Associates, L.C. and the 41st annual Metro Des Moines Apartment Survey, prepared by Commercial Appraisers of Iowa, 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 entering the transition phase of the real estate cycle. The metropolitan commercial real estate market has withstood the recession and is in the process of recovery.
Expert panelist members from CB Richard Ellis/Hubbell Commercial included:
· Jan Berg, CCIM, SIOR
Office Market Analysis
· Bob Stewart, SIOR
Industrial Market Analysis
· Tyler Dingel, CCIM
Retail Market Analysis
· Linda Gibbs, CCIM, SIOR
Senior Vice President – Private Client Group
Capital Markets Analysis
· Tim Sharpe, CCIM, SIOR
Senior Vice President – Private Client Group
Capital Markets Analysis
· Rick Krause
Multi-Unit Housing Analysis
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 2009, 2010 and 2011 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.
Jan Berg, CCIM, SIOR, office expert with CB Richard Ellis/Hubbell Commercial states, “The office market has benefited from the positive growth and new construction in the owner occupied sector. The downside of the new construction is that the competitive market has suffered from some of those occupiers vacating competitive space for their new facilities.”
· The metropolitan office market vacancy rate hit 11.7% this year, a slight decrease of 0.6%. Des Moines continues to outperform the national market, which now stands at 16.4% vacant.
· The primary office submarkets went in different directions since the last survey. The CBD posted a vacancy increase to 13.4%, down from 9% in 2010, while the Western Suburbs improved slightly from 12.7% vacant to 10.4%.
· The entire market posted positive absorption of 739,593 sq. ft. during 2010. Much of the absorption was isolated to the western suburbs submarket.
· 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 78.8% in the first quarter of 2011. The largest reduction in occupancy occurred in the CBD submarket with a 7.5% decline to 72.6% competitive occupancy. Much of the competitive occupancy decline was due to Wellmark and Aviva vacating competitive office space located in the CBD and occupying their respective owner occupied facilities.
“The industrial sector in the Greater Des Moines area is actually shrinking. Older warehouse buildings are either being converted into residential or torn down, while simultaneously, there has been no notable construction or expansions in the past year. Since industrial and warehouse properties are directly tied to consumer activity and jobs, as the overall economy continues to improve, so will the industrial sector,” states Bob Stewart, SIOR, industrial expert for CB Richard Ellis/Hubbell Commercial.
· Warehouse and manufacturing occupancy remains healthy at 89.5% and 95.1% respectively. The Greater Des Moines industrial market continues to outperform the national occupancy rate of 86.7%.
· The industrial sector inventory actually decreased by 303,216 square feet primarily due to industrial facility conversion to apartments in the CBD.
· Expect very little, if any new speculative construction until economic conditions and demand improves.
· The Flex market absorbed 74,016 sq. ft. and posted an 85% occupancy rate.
“The theme of a “tenant’s market” remained over the past year, as landlords continued to compete for limited retail activity. While we expect an increase in activity over the next year, it will take time to absorb the existing vacancy before we see an uptick in new construction and a return to a healthy retail market,” states Tyler Dingel, CCIM, retail expert for CB Richard Ellis/Hubbell Commercial.
· The neighborhood and community center category continued its occupancy decline to 75% in 2011, down only slightly from 2010.
· The big box market category continued its strong performance with a 95.4% occupancy rate.
· Overall occupancy of the four regional malls is 91.0%, improving 3% from 2010. This number will decrease when JC Penney vacates Southridge Mall this spring.
· Retail sales dropped 2.54% from 2009 to 2010.
· Little speculative construction took place during 2010 (28,150 sq. ft.) which has helped to minimize the declining occupancy in the neighborhood and community center segment.
“Last year we stood before you to report 2009 was the worst year of the decade for the commercial real estate industry. We can’t tell you that 2010 was rosy, but we did see signs that the clouds may be parting,” said Linda Gibbs, CCIM, SIOR investment properties expert for CB Richard Ellis/Hubbell Commercial.
“Commercial property sales improved markedly throughout 2010 ending the year on the strongest note since 2007.”
“The rebound in the investment markets was evident across all the property types. Yet, there continued to be a disconnect between buyers and sellers, with buyers grossly undershooting price targets and sellers were overshooting. However, the gap is now closing as market realties take hold,” commented Tim Sharpe, CCIM SIOR investment properties expert for CB Richard Ellis/Hubbell Commercial.
“In the Midwest tertiary market, which includes Des Moines, we did not see the same decrease in cap rates as in the national market; as a matter of fact they increased across the board for all property types,” Gibbs stated.
“We will see more capital available for investment properties from insurance companies, large banks and a resurgence in CMBS loans,” according to Sharpe.
“On the whole, we expect the positive factors will outweigh the negatives in 2011, and transaction volume will continue to grow,” added Gibbs.
- Investment sales were up 80% over 2009 and in the second half of 2010 gains in sales volume and declines in capitalization rates had been steeper than any other period over the decade.
- Sales transactions for all investment property types over $500,000 in the Greater Des Moines market declined by 15% from $148M in 2009 to $126 M in 2010. This was the third year that we experienced a decline.
- Commercial real estate fundamentals are improving.
- The competition for quality properties in major markets will drive investors to secondary and tertiary markets like Des Moines.
- It is estimated that only 40% of distressed loans have been resolved nationally.
Prepared by Commercial Appraisers of Iowa, Inc. for CB Richard Ellis/Hubbell Commercial the 41st 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 2011 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, “While home sales have consistently dropped over the past five years we saw apartment vacancy rates decrease more this past year than any time since 1999. This is a good sign of an improving economy. Consumers are willing to sign a one year lease but not commit to a 30-year mortgage.”
- The Des Moines metropolitan Apartment vacancy rate decreased from 8% in 2010 to 5.5% in 2011.
- The metro’s largest submarket, the west suburbs, posted a vacancy rate of 4.9%, which is an improvement from 8.6% in 2010.
- The average change in rental rates showed marked improvement over the past 12 months ranging from an increase of 7.5% for efficiency units to an increase of 4.9% for two bedroom units.
- The vacancy rate of low income housing tax credit projects improved to 4.4%.
- As of January 2011, construction is underway or permits have been issued for 485 units consisting of 364 conventional units and 121tax credit units. More units will be permitted and constructed throughout the course of 2011.
For more information on CB Richard Ellis/Hubbell Commercial, or for a complete copy of the 2011 Market Survey and the 41st Annual Apartment Market Survey, call (515) 224-4900, or visit www.cbrehc.com.