Vacancy rates for office space in Des Moines’ central business district rose to 17.6% in the second quarter of 2021 and to 14.7% in surrounding suburbs, according to data from CBRE|Hubbell.

Overall, office vacancy rates in the Des Moines area have increased from 12.4% in the fourth quarter of 2019  to the current 16.4%, CBRE|Hubbell’s data shows. (Click here to see chart.)

The vacancies can mostly be attributed to office users adjusting space needs in response to the pandemic causing employees to work remotely. As conditions improve, some companies are moving to permanent remote staffs while others are offering employees the option of working remotely one or more days a week.

The result is a growing amount of vacant office space on the market.

In the Business Record’s second Project515 event, a group of leaders from different office sectors discussed the office real estate market. One question they were asked was to predict what the future holds for the office sector.

Below are their responses.

Brian Crowe, executive vice president, economic development, Greater Des Moines Partnership: “I know right now that we have companies from all across the country who are recruiting our workforce to work remotely for their companies. I think there will be a continued battle for … workforce attraction and making sure that we are just a destination where people want to be. [That battle could] help bring those companies here and help fill up that vacancy. We also have extremely strong entrepreneurial business starts happening right now. Hopefully, there’s opportunities for some of those companies to grow [into] some of the spaces.

Siri Fliehler, registered interior designer, Shive-Hattery: “I think we’re going to see a lot of renovations happening [instead of] new spec office builds over the next five years. From a design perspective, I think it’ll be really honing in on ‘What are the employees needing when they come into the office? What’s that right balance and supportive different types of spaces? How does technology get integrated so that it is a blend of remote and in-person workers and it’s a seamless workplace?’”

Adam Kaduce, senior vice president, R&R Realty Group: “I think companies will move toward where the demand is. If it’s for smaller spaces, for the time being, that’s where the market will go. But you’ve got buildings right now in Des Moines that are owned by strong landlords and strong companies that have good balance sheets and are well capitalized. While we’ll see vacancy rates go up, we won’t see buildings get returned to lenders. I think they’ll continue to maintain good properties, and as those large use returns the market, they’ll start to backfill that space.”

Carrie Kruse, economic development administrator, city of Des Moines: “We’re going to see the downward pressure on lease rates and we’ll see the increase in the vacancies. Eventually, we’re going to see that reflected in property tax assessments. … There could be some short-term revenue challenges for local governments related to the shifts in commercial property assessments. But I think Des Moines is really well positioned for this to be a quick recovery. … I think the revenue challenges to local governments will be short-term.”

Jonathan Ramsey, associate principal, BNIM: “I think for a lot of companies, I can see them taking a strategy of just making smaller tweaks and working with what they have as being the preferred approach and not over-commit to any one strategy in the face of continued uncertainty. … Ultimately, there will be a critical mass of clients who get to the point where these sorts of strategies — returned to work and the hybrid — may become very commonplace in terms of what people are trying to accomplish in their workplaces.”

Bill Wright, senior vice president, CBRE|Hubbell: “Vacancy rates are going to go up, no question about it. I think you’ll have a period of time where there’s going to be some concern. Des Moines has so many great things going for it: quality of life, education, its people, its business climate. My prediction is, by the middle of this decade, we’re going have some major employers make a decision that Des Moines is their new home and [they will] backfill some of those spaces.”

The full Project515 video on the office market is available online to watch.