Job growth will precede a recovery in Iowa’s commercial real estate market, speakers agreed Tuesday at the Institute of Real Estate Management’s (IREM) market survey update.

IREM Chapter 63’s annual forecast, which was held for the first time in conjunction with the Iowa chapter of the CCIM Institute, recapped a trying year for the commercial real estate industry and outlined what brokers should expect in 2010.

“The three most important things in real estate today are not location, location, location; it is jobs, jobs, jobs,” said Rick Krause, a senior associate with CB Richard Ellis/Hubbell Commercial, to conclude his review of the multifamily sector and overall condition of the market.

“Occupancy will continue to struggle until we have job growth and development slows even further, which I believe it will,” he said.

Until Iowa’s unemployment rate, which rose to 6.6 percent in December 2009 from 4.2 percent a year earlier, improves, there won’t be enough workers to fill Greater Des Moines’ retail, office and industrial spaces, said Heath Bullock, a CB Richard Ellis vice president and broker who spoke about the office market.

According to Bullock, at least 20,000 members of Greater Des Moines’ 316,000-person labor force are jobless.

“Given those numbers, we don’t have bodies in Des Moines to fill the office space,” Bullock said. “So we are looking at adaptive reuse or conversion.”

To stabilize Des Moines’ office market, which enjoyed a 95 percent occupancy rate when Bullock started in the business in 1998 – compared with the current 75 percent occupancy rate – those who would like see any significant leasing activity in the Central Business District, Bullock said, need to find a more compelling argument to attract tenants.

“In my mind, there needs to be another reason for someone to occupy space in downtown Des Moines,” he said, such as Leadership in Energy and Environmental Design-certified development. Developers should also consider the adaptive reuse or conversion of existing structures, Bullock said, pointing to the East Village as a prime example. “There has to be another compelling reason to be downtown, and it’s not just free parking,” he said.

“We need to convince people that Iowa is even on the map,” said Harry Wolf, managing director at Buyers Realty Inc., referring to the retail sector. “Once we can succeed in that, I think the qualities of the Des Moines market are pretty clear.”

Pointing to an uptick in consumer confidence and a positive outlook on retail sales coming out of the holiday shopping season, Wolf said the retail market is “coming off of a very long hangover,” adding that focusing on the positives to overcome the negatives in 2010 is paramount.

One of those positives, Wolf said, is a number of national “value-added” retailers that until recently have largely ignored Iowa. But they are beginning to take notice.

“We were a flyover state; they didn’t think there were many opportunities,” he said. “We’ve been put back on the good list. … Those guys have rediscovered Iowa.”

The lease rates retailers are prepared to pay, however, has diminished considerably, Wolf said, leaving landlords with a tough choice. “You can either swallow hard and make a deal, or you can sit with empty real estate.”

“There is several years of quality product out there that will take some time to absorb,” he said. “Hopefully this too shall pass.”

On the industrial side, Jason Lozano, an assistant manager with Iowa Realty Commercial, talked about a scene that has been less affected by the economic downturn than other segments. Though industrial vacancy rates continued to rise on a national level throughout 2009, he said, the trend slowed in the third and fourth quarters.

In Greater Des Moines, Lozano said, the 2009 industrial market was stagnant, with occupancy levels remaining about flat on a year-over-year basis.

“Overall, the Des Moines industrial market is still relatively healthy,” Lozano said. “You’ve seen a little bit of increase in the vacancy, but it’s holding up pretty good.” He said that market’s current vacancy rate is about 9.5 percent.

Lozano said he doesn’t expect any new properties to come online this year and predicts vacancy rates will remain in single digits and asking rates will remain flat throughout the year.

“Lease rates have really stayed the same,” he said, “but the terms have been shortened.”

Krause said there wasn’t much sales activity in the multifamily housing sector in 2009, with only 77 such transactions recorded in Polk County for the year, compared with 90 in 2008 and 155 in 2007.

Tax credit projects accounted for 12 percent of sales in 2009, he said.

“I believe that the 2009 dollar volume, though it was 40 percent higher than 2008, was due to distressed sales, tax credits,” and several large transactions, Krause said. He also said tracking apartment sales in Des Moines has become more difficult recently, as a lot of apartment projects are being converted to cooperatives and condominiums.

“They don’t necessarily show up as sales and aren’t quite as transparent,” he said.

Krause said to look for a slight increase in multifamily vacancy rates in 2010 and cited a Ries Inc. study, which forecasts that national vacancy levels will climb to 8.3 percent this year.

Most sales in the multifamily sector this year will be of distressed properties, he said, adding that he believes the credit markets will begin to ease and lenders will realize a need to sell troubled assets.

“Your best bet is to work with buyers that can purchase with cash,” he told the approximately 100 brokers, bankers and other real estate professionals in attendance.

“In other words, be creative; plan on working twice as hard and hopefully not making less,” he said. “It’s going to take a lot of creativity to get deals done in 2010.”

Landlords across all market segments are expected to make more tenant concessions in 2010, to attract and retain clients in a buyer’s market.