Despite challenges, local CRE professionals optimistic
Presenters at the Institute of Real Estate Management’s and Certified Commercial Investment Member Institute’s Annual Market Survey Update in Des Moines on Tuesday showed cautious optimism about the state of the U.S. commercial real estate industry and were generally upbeat about the position of the Greater Des Moines market.
Bill Wright, managing director of transaction services with Terrus Real Estate Group LLC, said occupancy rates of Class A retail space in high-profile corridors along Delaware Avenue in Ankeny and along Mills Civic Parkway in West Des Moines continue to be bright spots in the metropolitan area, though retail lease rates have declined even in the most prominent locations.
“Well-positioned retail real estate is still doing well,” Wright said, adding that the recent opening of Trader Joe’s in West Des Moines and expected pockets of growth in Prairie Trail in Ankeny reflect increases in activity that shouldn’t be ignored.
However, an overabundance of retail shopping centers, including those that were constructed during the boom years when financing for speculative projects was easier to obtain, will be an area of concern this year. “We got maybe a little overzealous on developing unanchored neighborhood strip (properties) on some corners that were too close to other retail hubs,” Wright said. “I think those centers have struggled over time.”
Tyler Price, a broker with R&R Realty Group, expects a rebound in the office market to go hand-in-hand with job growth.
“I do expect a continued slow recovery very tied to the job market,” he said, noting that he thinks the office market has bottomed out and is poised for recovery.
One concern, Price said, is the unrealistic expectations that some office users have about the concessions local landlords are willing to make.
“The tenant perception out there right now is that you should be able to get clearance rates on your office market space,” he said. “You receive a lot of expectations of 50-cents-on-the-dollar deals. Fortunately, here in Des Moines that hasn’t been the case.”
In Greater Des Moines, Price said, concessions of 10 percent to 15 percent are more of the norm, though larger users may command more favorable lease rates because larger concession packages are more typical in larger office buildings with a lot of available space.
According to Darin Ferguson, owner of Ferguson Commercial Real Estate Services, the national industrial vacancy rate fell to 14 percent in the third quarter of 2010, the first decline since the second quarter of 2007.
And though more industrial tenants are signing one-, two- and three-year leases, as opposed to the typical five-year deals that were being inked prior to the recession, Ferguson said, he is hopeful that the local industrial market, which has a vacancy rate of around 10 percent, will experience a net increase in occupancies this year.
“We’ve shown numerous properties three or four times already this year to three or four different users; the same users coming back,” he said. “Hopefully it’s not an August day, where it heats up real quick and cools off real quick. If I had money sitting on the sidelines, I’d be buying industrial space in Des Moines.”