Retailers in a hunt for space in Greater Des Moines

To the casual observer, the retail landscape can seem to change overnight. But don’t be fooled by that storefront that seemed to appear, presto, along Mills Civic Parkway in West Des Moines. Chances are it’s been a gleam in a developer’s eye for several years.

A panel of retail experts gathered in March at the Business Record to discuss the Greater Des Moines retail market, what seems to be its resurgence and its prospects for growth. 

Members of the panel were Theresa Greenfield, president of Colby Interests, Chris Murray, president and CEO of Denny Elwell Co., Tyler Dingel, first vice president with CBRE|Hubbell Commercial, Marcus Pitts, senior vice president with JLL, and Steve Scott, senior vice president with NAI Optimum.

To a person, they represent retailers that want to operate in Greater Des Moines or own and develop properties where those retailers are tenants.

Greenfield’s company, for example, is repurposing Apple Valley in Windsor Heights. Murray has found success developing the Delaware Avenue corridor in Ankeny and breathing new life into tired shopping centers, such as Park Fair Mall in Des Moines. Pitts is helping DRA Properties LC find retailers in Ankeny’s Prairie Trail. Scott and Dingel can help fill retail space.

There might be some sleeper opportunities.

“East University (Avenue) between Hubbell (Avenue) and the (Iowa State) Fairgrounds is an up-and-coming development area,” Murray said. “We have acquired a center along that corridor. It looks like Broadlawns (Medical Center) is going to pick up ground there. ... I think that area will develop itself.”

Altoona, Grimes and Pleasant Hill all have potential, with Altoona already flexing some muscle. Walnut Street in downtown Des Moines could be a challenge, but the East Village is proof that local retailers can do well in an urban setting. Retail eyes have been on Ankeny and Waukee for some time.

To a person, they say that the Jordan Creek Town Center area is the mecca for retailers who take a first look at Greater Des Moines. Waukee is attracting interest from big-box retailers such as Target Corp. and Wal-Mart Stores Inc., with both companies interested in the 1,500-acre Kettlestone development area. Scott’s firm is helping to market that area.

Murray is curious to see how Waukee and Ankeny, another prize retail location, will compete for business. The winning communities in any battle for development will be those that create the fewest bureaucratic obstacles, he said.

They also agreed that downtown Des Moines, the East Village in particular, has become a haven for local proprietors who don’t mind sharing space with apartment dwellers and possibly office workers in the mixed-use projects that predominate downtown. As successful as those projects seem to be downtown, they might not work in all cases in the suburbs. 

In addition, such cohabitation is little understood by national retailers, Scott noted. He echoed other members of the panel, who doubted that the national brands would find downtown a big draw.

The stable Greater Des Moines economy has served as a calling card for retailers, but the metropolitan area’s low unemployment rate can be a blessing and a curse when hiring.

At least one suburban retailer postponed its opening for 30 days because it couldn’t find enough workers. The relatively easy commute across Greater Des Moines can be an attraction for retailers.

“It’s not Minneapolis-St. Paul,” Pitts said.

Greenfield pointed out that shoppers are looking for a special experience, but one that comes with few traffic snarls, and they want to save a dime or two.

“Shoppers need goods and services, and they want a convenient location,” she said. “They want to get there quickly, with easy access. We have seen a lot of growth in our portfolio. It’s a different shopper.”

Ethnic grocery stores, boutique grocery stores, discount shops, and hair and nail clinics are popular and successful. There are a couple of constants in retail. Population growth spurs retail growth, for one.

“One thing about Des Moines real estate, especially retail, is if you drove by a certain area, if you drove by a Prairie Trail or a Jordan Creek or wherever three years ago and then drove by today and saw something and said that just popped up, well no, it didn’t just pop up. The retail segment is a long process,” Murray said.

With limited spaces and many potential takers, the law of supply and demand is pushing up rents. The class B and C properties, in many cases, benefit. With a short supply of high-end, class A retail spaces, owners of the lesser properties can charge a little more.

And the rejuvenation of sleepy neighborhood centers, many of which fall into the class B and C categories, is proving profitable.

“Our occupancies are higher than they have been in ages,” said Greenfield, who quickly acknowledges that most of Colby Interests’ retail properties fall under the B and C categories.


Panelists:

Theresa Greenfield – President, Colby Interests
Chris Murray – President and CEO, Denny Elwell Co.
Tyler Dingel – First vice president and retail specialist, CBRE|Hubbell Commercial 
Marcus Pitts – Senior vice president, JLL
Steve Scott – Senior vice president, NAI Optimum

Moderators:
 
Kent Darr – Senior staff writer, Business Record
Chris Conetzkey – Editor, Business Record

 

In March, the Business Record hosted a roundtable conversation about the Greater Des Moines retail market to discuss the trends, issues and challenges business owners and real estate professionals should be aware of in 2016 and beyond.

Our panel of experts consisted of Theresa Greenfield, president of Colby Interests, Chris Murray, president and CEO of Denny Elwell Co., Tyler Dingel, first vice president with CBRE|Hubbell Commercial, Marcus Pitts, senior vice president with JLL, and Steve Scott, senior vice president with NAI Optimum.

What we learned, in general, is that retailers are having a difficult time finding the perfect location, and that the search for the right spot is driving up some rents. When space is found, a lack of construction workers can slow progress and a shortage of retail workers can delay an opening.

Sound kind of glum? Not so, according to our panel. Those shortcoming are the downside of a strong economy. One reason retail space is in short supply is that much of the available space is spoken for. And national brands that think they can come to town and hire on the cheap need to take a better read of the quality of the Greater Des Moines workforce.

 

Watch the Video
Want to watch the roundtable in its entirety? Go to www.businessrecord.com/AREM.


Can you give us a summary of the retail market in Greater Des Moines?

KEY POINT: A ton of retail space is coming online
Add up just the retail space coming online that our panelists mentioned, and it’s easy to see that the hard work of the past few years is about to pay off. The Altoona outlet mall and subsequent half-mile radius could bring 1.5 million square feet. And in Ankeny, The District in Prairie Trail could have between 300,000 and 400,000 square feet.

Steve Scott: I’m really not very involved in downtown retail. Obviously, the Hy-Vee Inc. project is going to be very big downtown. … Hopefully that will spur more downtown boom. We need goods and services to drive population growth downtown. I don’t know the exact number of residents living downtown, probably around 10,000. That is not going to drive a lot of national retail. Probably more goods and services and more quick-service restaurants. Restaurants seem to be doing very well. Most of the work we do is more suburban, more big-box and junior anchor type retailers. There is some interest in the Des Moines market. We have some interest in Waukee from Target Corp. and Wal-Mart Stores Inc. We see some opportunistic growth in big-box. 

We are involved in the Prairie Crossing development in Altoona, and a lot of the retail there is going to be driven by the outlet mall that is coming in. You get the existing retail that is in Altoona today around the Eighth Street interchange, and there’s almost 500,000 square feet with the Wal-Mart Supercenter, the Target, the Lowe’s and Menards, and going even further. the Bass Pro Shops with another 150,000 square feet. For the outlet mall, they are talking 330,000 square feet, and right along with that, we will be representing the Heart of America organization, and they are planning another 400,000 square feet adjoining the outlet mall. Within two to three years, there could be 1.5 million square feet of retail within a half-mile radius. That is going to be a game changer in retail in Polk County. 

Marcus Pitts: We’re seeing what echos Steve’s thoughts on downtown. There’s a good attraction to downtown now, and it’s really great to see. As I mentioned, the Prairie Trail area, the plaza shops area with all of that anchored by Hy-Vee, we’ll probably have 100,000 square feet of retail developed just within that subsection. We have about 60,000 square feet out of the ground so far. The District, which is part of the development, is going to be 300,000 to 400,000 square feet. We’ve probably developed 150,000 square feet of that. Other than Hy-Vee, we intend to build that with strong local restaurants and strong local retailers. We really don’t have an anchor up there. With the … new library/civic building that will be completed probably in late 2018, early 2019, that really is the first big anchor there that we have announced. We have been in talks for several years now with some other large anchors. I think this year we’ll get some traction.

Tyler Dingel: We do a lot of tenant rep work. The amount of demand out there seems to be exceeding the supply. That is having an upward impact on some of the rents. In particular, if you look at the quick-service restaurant market out there, there are a lot of groups who are looking for class A retail with rooftop patios, that kind of product, and it’s really hard to find. 

When new product comes online, it gets filled pretty quickly, especially on the ends. Sometimes you’ll have a middle bay left. I sent out a letter this week and got a response back that was $5 to $6 per square foot higher than expected. That’s a product of the land pricing, the construction costs, which are extremely high, and just the overall lack of good product. 

The other thing we are seeing is that there is a little bit of a disconnect if you look at what we call an A position center versus the B position center. Let’s say the A product starts to rise where occupancies are very strong; then that B product has seen a lot of upward movement. It will be interesting to see how that plays out. When retailers come into the market, the focus really is in the western market; that’s where you see a lot of national brands and a lot of focus. 

I would say B product would be Southeast 14th Street, the Southridge Mall area. Some of those rents there you’re going to see in the low double digits. I would say that is a good class B product. If you look at that same space around Jordan Creek (Town Center) and go straight north to University (Avenue), those rents are going to be in the $23-per-foot range. The other interesting thing is that retailers have had a lot of success stories. A lot of retailers are expanding and looking for new space. But we have had some struggles. Sports Authority just filed for bankruptcy. We have been working with (the landlord) for a lot of the Sears and Kmart stores across the country, and we are going to have four stores here in Iowa that are going to be coming available. There are some stores that are still struggling, and I think that is resulting from the trend of the online retail concept. 

Pitts: Industrial space as a general rule is cheaper than retail storefront. Increase your online presence, sell the product online and store the product in $4- to $5-per-square-foot industrial space; then you’re not paying $15 to $20 for some of these retail storefronts. They are shrinking their local presence and increasing their online.


We hear that online retailers with a storefront have the best of both worlds?

Dingel: That’s a trend in retail that is referred to as omnichannel, and basically what it means is just being able to utilize online shopping, mobile shopping and in-store pickup. If they can have somebody buy a product online but register for in-store pickup, instant delivery, that person is going to pick up three or four additional items while they are there.


Are there any good hidden opportunities in the market?

Chris Murray:
I look at B and C locations right now as opportunistic. If you understand the market … those properties require local presence, local expertise and capital. As an example, East University (Avenue) between Hubbell (Avenue) and the (Iowa State) Fairgrounds is an up-and-coming development area. We have acquired a center along that corridor. It looks like Broadlawns (Medical Center) is going to pick up ground there. ... I think that area will develop itself. 

We have Governors Square in West Des Moines, the Dahl’s building in Ankeny. I’ll be honest; not everything works out the way you hope. I’ve had that Dahl’s building for two years, and I’ve probably talked to everybody on this panel about opportunities. But things are moving along. We have outlots, we have a fitness center that is close to being announced, a small food production facility; the north side of Ankeny in this case continues to evolve and develop very quickly. It is following housing. If you look at Prairie Trail, that knot is getting tied so to speak between Prairie Trail and the northeast quadrant and the west quadrant of Ankeny. 

If you talk about goods and services, we’re seeing a lot of activity and development in that market. And if you jump to the south side of Ankeny, northeast Polk County, there is a lot that is happening there. There’s a hundred acres that lies between the Corporate Woods interchange and Sam’s Club and that is poised for development. You see the project in Altoona that is happening. Ames is starting to look at some annexation, and they are looking at their development. … The Jordan Creek area is hot. It’s the first place everybody looks.

KEY POINT: It’s hip to be thrifty
Retailers are looking at B & C class space for service value type retail -- fitness centers, nails, hair salons, grocery stores, thrift stores and dollar stores. It’s become hip to save, and retailers are adapting.

Theresa Greenfield: The majority of our portfolio is B and C (class); we have the lowest vacancies we have had in ages. I think that consumers want goods and services in a good location. They want to get it quickly, easy access … then move on with the rest of their errands for the day. There is a lot of opportunity. It’s a different market and a different tenant and certainly a different shopper. It’s daily goods and services, such as nails, hair, fitness centers. We have an ethnic grocery store, and they are booming. 

Scott: What I see as one of the hottest retail segments growing is value retail. A couple of years ago, luxury retail was very hot. We have seen that slow down. Right now it could be dollar stores; Family Dollar, Dollar General, they are expanding very rapidly. Those types of retailers are very active. They are looking for spaces that as long as the center is well-located, has good traffic counts and good access points, it doesn’t matter where it’s located. East University, there are always going to be tenants who want those kinds of locations.

Greenfield: People are being thrifty. They are very interested in Aldi, when it comes to national brands, they are interested in Goodwill and consignment stores. These are people with families. Could they spend more? Probably, but they don’t want to spend it on goods and services. I’m not sure what they are spending it on, but it has a little bit of a hip vibe to it.

Dingel: I think you’re seeing some of that transition in some of the restaurants. Consumers are saving on some of the goods that they buy, and they are spending it on entertainment. I want to touch quickly on Chris’ comments on some of that opportunity in the B and C class. Some of the things that are pushing rents is construction costs. To get into a shopping center at $40 to $50 a square foot per building, you can spend three or four times that to re-create that center. So that’s where there’s that opportunity, where you can compete at a price point in a market that meets those services at a reasonable cost.


What kind of success do you see for the mixed-use projects that are fairly common in downtown Des Moines and are popping up in the suburbs?

Pitts: We have a concept in The District (in Prairie Trail) where we have retail on the first level and office on the second level. We’re 100 percent occupied with office on the second floor (of one of the District buildings), and I want to say we are committed to 80 percent right now on another. We’re seeing pre-leasing activity. I feel like we’re having some success there. I can’t speak to how that’s working in other segments of the market.

Scott: It is hard for national retailers to understand how mixed-use works. It is very expensive to build this kind of product. Any time you go vertical, you incur the costs of elevators and stair shafts and the mechanical systems are different and very complicated, so your rents are going to be higher. If you’re doing that in a location where people aren’t used to that, you’ve seen mixed-use projects that have been brought online in the last 10 to 15 years that have failed because you have a situation where the customers expected to park behind the retail space, and this is just not the way that we live. You try to do that in the suburbs, and it gets to be very difficult. The national retailers like for their customers to be able to park at the front door. They like to be able to control how the cash route works. They want to have their customers check out near the front door; they don’t want to have to control the back door entrance because it is very difficult. You’re opening yourself up to shoplifting, theft, those kinds of things, when you have multiple entrances to the store. National retailers struggle with that. 

Dingel: From a presence standpoint, they come in and they have a box. They know how they want their storefronts to look, and they struggle finding a presence when they have a multistore product. … They say, we want an end cap, we don’t want anybody above us, we want a drive-thru, and that’s what they are used to, that’s what they have found success with and they don’t want to change the mold.

KEY POINT: Mixed-use can present challenges
Mixed-use buildings blending office, housing and retail are desired by communities. But national retailers struggle with the concept, particularly in the suburbs, due to the higher costs and logistical challenges they don’t usually have to contend with. 


Is regional and municipal planning helping or hurting?

Greenfield: I think as a region we’ve elevated the conversation … with The Tomorrow Plan and Capital Crossroads, and those are interesting ideas. The difference comes when you take those ideas and implement them today … to physically make those developments work today. They tend to be successful where there is an urban core, and then to branch out from that, but to introduce them in a non-organic way in a suburban area, it is very difficult. Oftentimes (the community) doesn’t have all the other amenities to make these developments successful, whether it’s a new library or schools, city investments, parks, now you have a place and that’s different from just a big leap forward that is being driven by a plan. 

Pitts: We’re fortunate … there is demand in Ankeny. The city tracked down a stat from a study that $750 million in (purchases of) consumer goods leaves the city every year; there is $60 million in food and beverage (purchases) per year from Ankeny that is going outside of Ankeny. I think when we hear retail figures like that, we feel good about what we are doing at Prairie Trail. … I know that Ankeny is especially proactive in trying to provide the amenities that the community wants. 

KEY POINT: Stop the leakage
Ankeny did a study that shows that its residents are spending $60 million per year on food and beverages outside the city limits. The suburbs are looking at ways to stop that leakage of goods and services and instead offer them within their borders.

Scott: We’re doing a lot with the city of Waukee. We have some involvement with the Kettlestone development, and that has been one of the driving forces out there. The city has been very willing to help out. They have done some amazing things in providing infrastructure to support new development. … Waukee has gone to extreme lengths and been very supportive in terms of supporting with infrastructure, with (tax increment financing districts), because they see leakage.


What do retailers see when they drive the Kettlestone corridor?

Scott: The retailers that we have mentioned are looking at that area, and they see the population growth. They look at that because the deal pipeline for a large retailer ... there are retailers that are looking at upcoming stores in 2018. It isn’t that they are looking to build a store next year or this year; their pipeline is full. They need a much longer lead time. They look at the expected population growth, and they can see it coming.

Pitts: We are seeing that in Ankeny. The city met some retail milestones this year. The population growth. Prairie Trail has three or four schools, we have (Des Moines Area Community College), we have Simpson College. The apartments we have are 300 units that are under construction now, and in the pipeline, probably another 400. We are doing another student housing project with DMACC. All in all, that will be about 600. On the residential side, southwest of State Street, we are probably halfway through those homes. All in all, with Prairie Trail fully developed … they are anticipating a population of around 10,000 people, and keep in mind that is within the (total population) of Ankeny. I think that is why we have had a lot of success in the early going. Retailers have seen this is coming. We have done some national deals there, but really our bread and butter has been local and office users.

KEY POINT: Future population 
The lead time for landing large retailers is many years in advance. As they make plans, they are looking at the areas that are going to be seeing large population growth well into the future, and cities that are being progressive in planning for that growth.

Murray: If you look at the growth of Ankeny, on the east side of Interstate 35, the number of houses there is unbelievable. The school district is looking at an elementary school on the east side of I-35. One of the problems is that as a state, our population isn’t growing. Where is everyone coming from? What community is being served? There are winners and there are losers. Identifying those winners early, as Steve said, they have retailers looking. Whether it’s Wal-Mart or Target, they’re looking at Waukee. How Waukee and Ankeny compete is going to be interesting. With rising construction prices, with limited sub-labor performing work, those schedules are being slowed down. Anybody who has worked with a large retailer realizes they typically have a very aggressive schedule, so I think going back to issues that are going to arise, talking about municipalities, the municipalities that are proactive and want development are going to win, those that have extensive bureaucratic processes to have things approved are not going to win. We talked about leakage; every community wants to beat that leakage. Every city in the metro has an economic development coordinator now. That is a big change from 10 years ago. They are being progressive, they are working with brokers, they are working with developers trying to figure out ways to win. That is what it’s going to take to move things forward.


We talked earlier about the challenge vendors are having with hiring people due to our low unemployment rate. Is that delaying the start or completion of projects?

Pitts: I think on some of these one-off deals yes, but most of these are so well-planned; they typically work with a particular construction entity on these larger-scale developments. Is the price as competitive as it was three or four years ago? Probably not, but that’s just the construction industry, supply and demand. As a rule of thumb, they are able to perform on the timetable they say they will perform on.

Dingel: A lot of these marketers are working with large development companies. The cost of labor might be rising, but they are going to find people to come in and take the jobs. We’ve seen some retailers who are struggling to get enough employees, the right employees, hired. I think that is having more of an impact.

Scott: We have heard retailers voice that concern. The Des Moines area has a 3.5 percent unemployment rate. There is a retail store in the market that has delayed opening by 30 days because they couldn’t staff it. Retailers have brought that up, but it is the double-edged sword of our great economy. I don’t believe the unemployment rate is 3.5 percent, I think it’s really closer to 10 percent, which is still low compared with the rest of the country. But what I think retailers miss the point of is that if you try to come in here and hire people at minimum wage, you’re in trouble. The other point that I always make is that you don’t have to hire people at minimum wage because of two things. The first is the work ethic. We have a very high work ethic here. You can hire good-quality people because of our strong work ethic. People want to work, they show up to work, and they want to work hard. That’s something that a lot of retailers don’t experience in other large cities. The other thing that I think is a real advantage here is the high level of education of the workforce that they can hire, and that matters a lot. Once they consider that, they think, “OK, I can pay more than minimum wage; I can pay a couple bucks more,” and when they do that, they can hire. 


Is there pent-up demand, especially coming out of the recession?

Dingel: I think there probably are a lot of projects that are in the pipeline currently. Steve talked about Wal-Mart and Target. You look at retailers and look at their opening schedule, and they are looking at 2018. What I don’t think a majority of the people know is that the timeline from the time of the conversation Steve might have today, to a purchase agreement, to a sale of ground to opening a store, you’re probably looking at a five-year process. It doesn’t happen in six months. There is a lot of forward planning that happens before these things come to fruition. There are quite a few developments. There is one going in on Mills Civic Parkway that if you drove by today you wouldn’t have any idea that something is going on. There are at least a half-dozen projects right now.

Murray: One thing about Des Moines real estate, especially retail, is if you drove by a certain area, if you drove by a Prairie Trail or a Jordan Creek or wherever three years ago and then drove by today and saw something and said that just popped up, well no, it didn’t just pop up. The retail segment is a long process.


Are you seeing more prospects now than you saw five years ago?

Dingel: Absolutely. The outlet mall (in Altoona) was first announced in the early spring of 2014. “Construction coming soon.” Here we are today, and the headline two weeks ago was “starting construction in the spring of 2016.” There are a lot of behind-the-scenes conversations going on with retailers. A lot of times it’s a co-tenancy issue. You might have five different letters of intent that are contingent on each other. … The dominoes have to all fall at the same time. It’s a long, difficult process. There are more conversations, especially for new construction, than we have seen in a while.


Where are some of the sleeper areas that have potential in the future?

Murray: The northeast quadrant of Polk County has a lot of potential. For a number of years, Altoona and Pleasant Hill tried to figure out how they marry up with each other, and I think they are starting to figure things out.

Dingel: Look at the areas with the most traffic, that is a good place to look, then you look at population growth and the number of building permits that are being pulled.