Navigating Cedar Rapids commercial real estate

 For The Gazette of Cedar Rapids and Iowa City, Iowa March 04, 2022

(Jim Slosiarek photo/The Gazette)

The state of things for the Cedar Rapids’ metro area’s commercial real estate for 2022 likely will look a lot as they did in 2021, according to a new report from GLD Commercial.

“Throughout the pandemic, the local office market has remained relatively stable,” David Drown, GLD principal and founding member, noted in the report.

“Many small employers are now back in the office while the metro’s largest employers continue to be slow to return to pre-pandemic occupancy levels. Expect a continued hybrid of remote and in-office work as we navigate further into 2022.”

The report, released Thursday, was compiled using data from the Cedar Rapids Association of Realtors MLS, the Cedar Rapids City Assessor and the Linn County Assessor.

It tracks 2021 occupancy and rents for Cedar Rapids’ central business office district, or CBD; its suburban offices; the industrial market; retail and service properties; and multifamily and mixed-used buildings.

Adam Gibbs, GLD vice president, in discussing the report with The Gazette said the metro area overall is “a strong and stable market.”

But he added “inflation and rising interest rates will have an impact” going forward.

Central business district: Hybrid work continues

The CBD, with some 3 million square feet of office space — not including hospitals — saw a vacancy rate of 12.08 percent at the beginning of 2021 and “remained relatively consistent throughout the year,” the report found.

Fourth-quarter figures showed vacancy at 12.65 percent.

Hybrid work schedules and employees working from home “will continue to affect the daytime population” downtown. That will “ripple” through downtown bars, restaurants and retail. However, events at entertainment venues such as the Paramount Theatre and Theatre Cedar Rapids will help business at evening dining establishments.

The report did cite a pair of anticipated shifts downtown — continued conversions of now mostly vacant Class B and Class C office space to multifamily residences, and more empty office space as businesses “continue to evaluate their future workplace needs.”

Industrial: Supply chain stresses

This market, the GLD report said, has stayed “robust” during the past 36 months. Numbers suggest activity will continue to be active “well into” this year.

“The demand for larger distribution and logistics buildings is largely being driven by the focus on current and future supply chain demands,” the report determined.

The Cedar Rapids industrial market category counted existing and under-construction industrial buildings such as warehouses, flex, commercial and small shop properties. Owner-occupied, special-purpose manufacturing sites weren’t included in the figures.

It consists of approximately 11 million square feet. Last year started out with a 5.5 percent vacancy rate but concluded at 0.71 percent. Average rents went from $5.25 per square fo ot in the first quarter to $6.21 in Q4, according to the report.

A second-quarter jump was attributed mostly to Color Web Printers on Bowling Street SW coming onto the sales market. Lip balm manufacturer Raining Rose agreed to the buy the 198,884-square-foot warehouse in January of this year.

Drown noted in the report that, “… our market has seen a rush to lease warehouse space as well as an influx of new construction industrial space. The rise of e-commerce, couple with the immense strain on the supply chain, have forced retailers and manufacturers to seek additional space to store consumer goods and assembly materials.”

Suburban offices: Stabilization in 2022?

The sector has about 6 million square feet. Vacancy was at 4.67 percent in the first quarter, but climbed to 6.24 percent by Q3 and to 8.06 percent in Q4.

Net average rents followed suit, dropping from $12.10 per square foot at the beginning of 2021 and ending the year at $11.81.

The Toyota Financial building, at 5055 N. River Boulevard NE and with more than 107,000 square feet, is expected to be on the market by the end of this year, the report said. This is close to the land formerly occupied by the Transamerica buildings that were razed in 2021, near Highway 100 along Edgewood Road NE.

However, the report anticipates this market will stabilize this year, even though suburban office sites are less likely to see conversion to multifamily residences.

It noted most metro suburban office locations are for employers occupying fewer than 10,000 square feet, and the coronavirus pandemic has had less effect on them.

Retail and services: Sears, Younkers remain empty

Neighborhood centers boasting a mix of retail and service and food businesses will be fine going forward, the report said.

Empty box-box spaces will continue to be converted, such as the one-time Gordmans clothing store on First Avenue SE being redeveloped into a Spare Time Entertainment facility featuring arcade games, a bowling alley and laser tag.

In addition, the now-closed Staples, Toys “R” Us and EconoFoods buildings near Westdale Town Center on Edgewood Road SW remade into small climate-controlled storage sites.

Still be determined are the fates of the metro area’s biggest big-box vacancies — Sears and Younkers at Lindale Mall in the city’s northeast quadrant, and the adjacent Hy-Vee grocery store, which was closed in early January.

GLD’s Gibbs, in discussing the report, suggested the Hy-Vee building would be suited to being broken up for three or four retail businesses, all with exterior entrances.

The nearby Sears and Younkers structures would be better for non-retail or less-conventional retail use, Gibbs said. He pointed to the conversions of vacated sites at Westdale as examples — such as U-Haul’s branch store in a former Younkers anchor site.

The Cedar Rapids metro’s retail and service market consists of some 9 million square feet, according to the GLD report.

The average rent rate has stayed fairly stable, with $13.85 per square foot in the first quarter 2021 and $13.90 in the fourth. Vacancies fell only slightly — from 4.82 percent to 4.72 percent by year’s end.

Multifamily and mixed use: More multifamily sites

As occurred nationwide, the boom in sales of housing in the Cedar Rapids metro pushed more people to rent, which in turn escalated rental prices.

But the reports indicated the increase of multifamily residences in the area should pull down rents.

The average vacancy rate in 2021 was 5.89 percent, the report said.

Average monthly rental rates were $524.50 for a one-bedroom apartment, $656.83 for a two-bedroom and $725 for a three-bedroom.

GLD aims to publish a commercial real estate report for the metro area annually, Marketing Manager Amanda Proper said.

The 2021 report can be viewed at gldcommercial.com or via the QR Code above.