A step back for the Des Moines office market? That appears to be the case, according to the latest research from Colliers.
According to Colliers’ second-quarter Des Moines office market report, the Des Moines office last quarter saw rising vacancies and negative absorption. This highlights the challenges facing older office buildings, particularly in the city’s central business district.
Of course, this isn’t a situation unique to Des Moines: Cities across the country are seeing demand fall for older office space.
According to Colliers’ second-quarter Des Moines office market report, the metro recorded 52,969 square feet of negative net absorption during the quarter, pushing year-to-date absorption to a negative 14,113 square feet. The market’s overall vacancy rate also increased, climbing from 16.1% in the first quarter to 16.3% by the end of June.
As in most cities, though, newer office spaces with more amenities performed better. Colliers reported that class-A office properties posted 70,241 square feet of positive absorption during the second quarter, more evidence that companies here continue to gravitate toward higher-quality office space.
The news wasn’t as good for Class-B buildings in the Des Moines market, which recorded 109,360 square feet of negative absorption as tenants vacated or consolidated space. Even with positive absorption, however, Class-A buildings still carried the market’s highest vacancy rate at 21.7%, largely because of several large vacant blocks remaining available. Class-B vacancy finished the quarter at 12.8%, while Class-C vacancy stood at 11.8%.
Location also made a significant difference. Downtown Des Moines struggled during the quarter, posting 63,074 square feet of negative absorption as Class-B properties experienced the largest tenant losses. The central business district ended the quarter with a vacancy rate of 16.8%.
Suburban office markets turned in a better performance. Collectively, suburban properties generated 10,105 square feet of positive absorption while maintaining a slightly lower vacancy rate of 15.9%. Gains in Ankeny, the Northwest, Northeast and South submarkets helped offset continued softness in the Western Suburbs.
One factor helping stabilize the market is the absence of new construction. Colliers reported that no office space is currently under construction in the Des Moines market, meaning leasing activity is occurring almost entirely within the existing inventory of approximately 25.6 million square feet.
Lease rates remained relatively steady despite the market’s higher vacancy. The average direct asking lease rate dipped slightly from $22.12 per square foot in the first quarter to $21.83 per square foot full service during the second quarter. Class-A properties continued to command the highest rents, averaging $24.08 per square foot, while Class-B space averaged $19.68 and Class-C space averaged $18.46. Ankeny posted the metro’s highest average asking rent at $25.68 per square foot, ahead of downtown’s $23.46 average.
Sublease availability increased during the quarter, rising from 206,387 square feet to 237,357 square feet. But sublease space still made up just 0.9% of the region’s total office inventory, indicating that direct vacancies remain the primary source of available office space. Class-B buildings accounted for the majority of sublease inventory, while Class-A properties reported no sublease availability.
Investment sales also reflected today’s selective office market. According to Colliers, buyers remained cautious, focusing primarily on well-located suburban properties, owner-user opportunities and assets priced to reflect current market conditions. Higher-quality suburban buildings generally achieved stronger pricing, while downtown investment activity centered on value-add and repositioning opportunities for discounted assets.
