The COVID-19 pandemic has hit the commercial real estate market in every city across the country. Some markets, though, have been more resilient than others. One of those? Des Moines.
Midwest Real Estate News recently spoke with Jared Husmann, founder and chief executive officer of the Katalyst Team at KW Commercial in West Des Moines, Iowa. He said that the CRE market in the Des Moines market remains vibrant, even as the country continues to fight through the pandemic.
Here is some of what Husmann had to say.
The COVID-19 pandemic is obviously still a major concern across the country. How has the pandemic impacted the commercial real estate market in the Des Moines area?
Jared Husmann: Right now, we are actually stronger in several sectors than we were pre-COVID. The multifamily and industrial sectors are thriving. We are seeing record sales volumes and record sales prices in the multifamily market. We are stronger in this sector than we were even pre-COVID. For us, COVID was mostly a speed bump, not a stop sign.
Why is the multifamily market in Des Moines so hot right now?
Husmann: Across the board, multifamily is doing really well. People are looking to invest in multifamily. A lot of it comes down to the appetite investors have for multifamily. It’s a hedge against inflation. Credit and debt are also widely available. Additionally, in the Des Moines market, we are seeing very strong population growth. Employment is strong here, too. I point to our pro-business environment in Iowa and Des Moines, too. During and after COVID, all those factors have continued to drive investment in our multifamily market.
How about new developments? Are developers building new multifamily projects in the Des Moines market?
Husmann: We went though a period in 2015, 2016 and 2017 when we brought quite a few multifamily units online in the Des Moines market. The pipeline of new units then dried up a bit after that. Even this year, we had a relatively low supply of new apartment units coming online. Our market has absorbed what came online and now that we’ve absorbed that, we are seeing renewed interest in multifamily development and construction to keep pace with the new influx of residents.
How strong is the demand from Des Moines residents for new apartments?
Husmann: As we are seeing across the country, there has been an increase in the price of single-family homes, both resale and new development. That higher price is forcing more individuals to rent for a longer period. They don’t have the financial ability to buy a single-family home. We are seeing more people who are choosing to rent while they try to find a house that is in their price range. We don’t have enough single-family housing product available right now, and much of what we do have is at a high price point.
How is the multifamily market performing in downtown Des Moines?
Husmann: Suburban multifamily is doing better right now. The urban market has been hit a little bit by the pandemic. But it’s not been as bad in downtown Des Moines as it has been in other markets. Iowa didn’t shut down as much during the pandemic. And by now, everything has opened back up. Our downtown urban is still fairly strong. We have some new projects being proposed now in Des Moines’ Bridge District and in the Gray’s Station neighborhood. We are continuing to see investment and development in downtown multifamily.
In the urban setting, it’s been a bit of a tail of two cities. We have a few operators in the urban sector who have some issues with occupancy rates. A couple of other operators in the urban market have done really well. Some projects have suffered in the urban market, and those have dragged down the overall urban market. But overall, even the urban market has strong occupancy rates and rent collections. The suburban multifamily market is still the strongest, but the urban market is holding its own. We never overbuilt as much as some other markets did.
Are you surprised at how strong rent collections have been?
Husmann: Collections have been strong since the beginning of the pandemic. That’s been the best surprise to everybody. With that being said, operators, management and owners did pivot from the early days of the pandemic to find ways to work with resident. They promoted payment programs and educated their tenants about the eviction moratorium and how that will end. There’s been a pretty strong consensus that the residents who were struggling to pay or unwilling to pay their rents prior to COVID have been the same ones who’ve caused the most issues during the pandemic and eviction moratorium.
What about concessions? Are owners still boosting their concessions to attract new residents?
Husmann: From what I’ve seen, that is going away. Major concessions are only being offered in brand-new products that are looking to lease up. Most of those are in an urban setting. I’m not seeing many concessions in suburban markets. That could change as more new multifamily development comes in. But right now, we are not seeing much in the way of concessions except in new product.
What are renters looking for when it comes to amenities?
Husmann: What renters really want are the cheapest monthly rent and the most space. Most of our renters who choose to live in Class-A and new product don’t necessarily want all the fanciest amenities you might see in other markets. They want new product that is affordable. They want a nice product that comes with affordable rent.
There is a lack of affordable housing in our country. That has been the biggest success in our market: new Class-A projects that are affordable. I don’t mean subsidized or low-income housing, but a good basic new property that is Class-A in finishes and quality but without all the fanciest amenities. In the Midwest, we aren’t as inspired by the flashiness as maybe people in New York City or the coasts are. We can have a nice product and that’s enough. Renters here don’t need or want all the extra amenities. If it’s something that is affordable versus something with added luxuries, they’ll choose affordable every time.
I know it’s difficult to predict, but what do you see for the near future in Des Moines? Do you think the commercial real estate market here will continue to be active throughout the rest of this year and into 2022?
Husmann: I don’t see any slowing of our economy locally in terms of development or construction. The amount of development taking place in Des Moines is impressive. We are looking at billions of dollars throughout multiple projects. I don’t see Des Moines having any slowdown in its commercial real estate market. There is enough capital in the market searching for deals and yield, that investors will continue to find our market attractive.