IowaCRE Staying strong during challenging times: Des Moines’ CRE market fighting through the slowdown Dan Rafter July 30, 2020 Share on Facebook Share on Twitter Share on LinkedIn Share via email The Westfield Campus is R&R Realty Group's flagship office development in Des Moines. Mark Rupprecht sees signs of hope in the Des Moines commercial real estate market, even as the city fights to contain the spread of COVID-19 and retailers struggle to bring customers back into their shops. Rupprecht, president of West Des Moines, Iowa-based R&R Realty Group, points to the strength of the Des Moines CRE market at the start of 2020. As the year began, the market here was soaring. That ended abruptly with the onset of the pandemic, of course. But this strength gives Rupprecht hope that Des Moines will recover quickly in the post-COVID-19 world. Midwest Real Estate News recently spoke with Rupprecht about the state of the Des Moines market, which sectors are still performing well during the pandemic and what the future looks like for this key Iowa city. Here is some of what he had to say. Let’s start with the question I’m asking most everyone today: Are you seeing signs of hope in the CRE business today, even during this pandemic?Mark Rupprecht: Yes, I am. These are certainly challenging times. But there is still business being done. At the start of this, everyone had to quickly leave their offices and figure out how to work from home. There was a lot of uncertainty at the beginning. No one knew if we’d be working from home two weeks or longer. Now that we’ve had time to look at this, we realize a lot of people are going to be working from home a little bit longer. In our market, there are still companies that are looking at what their return-to-work plans might be. Some have brought people back. Some have brought just a portion of their workforce back. I was talking to a company president in the lobby of our building earlier today. I asked what they were doing. He said they’ve just started on their return-to-work plan. They were surveying employees to find out who wanted to come back and who didn’t. Based on who wanted to come back, they were figuring out proper spacing and what protocols to put into place. Companies are planning for bringing their employees back to work. Some are pushing it off further. Some might only have 50 percent back by the end of the year. There is still uncertainty out there on what returning to work might look like. But companies are planning for their employees’ eventual return. That, to me, is a good sign. Are there certain commercial sectors in the Des Moines area that are performing better than others during this pandemic?Rupprecht: It’s not much different than what you see nationally. The thing that has been hardest hit is travel and the hospitality industry. The hotels, convention business, those are faring the worst. Retail is facing challenges, too. People are less likely to go to the store and buy something. This pandemic has forced people who were buying things online to do more online purchasing. But at the same time, there are pockets of retail that are doing well. A grocery store or drug store might be doing well today. A movie theater is not doing so well. Office has not been hit as much as the retail sector. What we are seeing with some of our office customers right now is that they are not making any big moves as it relates to real estate because of the uncertainty right now. They are putting off any big decisions. Some might be looking more carefully at their space needs. They might be debating if they need as much office space as they currently have. They are looking at the layouts of their offices and deciding if they might need more space between employees. There is a lot of thought on de-densifying the office. Companies are wondering if they should have people work from home on a full-time basis or should they have them come back to the office permanently? More than likely we’ll see a combination of both approaches in the future. The apartment market has fared better, at least in Des Moines, than have office and retail. But this market is seeing uncertainty, too. For now, apartment owners in the urban areas might suffer more than those in the suburban areas as people want more space and more outdoor space during these times. Apartments used to be empty during the day while people were at work. Now everyone is home all day. That makes it more challenging to maintain these apartments and meet the needs of renters. Low interest rates might inspire more renters to move out and purchase a home. So far, we haven’t seen a mass exiting in our apartment market. There has been some increase in vacancies, but it hasn’t been really significant. That leaves industrial. Has the industrial sector remained strong in Des Moines?Rupprecht: The industrial market that has performed better here in the short term. People are looking at how to distribute products more efficiently as consumers buy more online. How do I get that product quicker and closer to those consumers? A lot of companies are looking at logistics and supply chain management. That has created strong demand for industrial. You mentioned more people shopping online during the pandemic. Do you think that will continue?Rupprecht: Amazon, of course, remains the big ecommerce giant. Amazon is coming now to markets like Des Moines. They are building fulfillment centers and last-mile distribution centers. Other companies are looking at changing the way they distribute consumer products. They, too, are looking at our market. Maybe in the past, these companies wouldn’t have considered Des Moines for their facilities. They are today. There is an interesting example of ecommerce happening in Des Moines today. There is an agricultural company that is looking at how it produces seed for the farmers here. Maybe they can special order that seed and distribute it more on a local basis. There are many different industries that are taking a closer look at ecommerce. That is going to create more demand in the smaller markets. It won’t just be the big gateway markets that will be getting the distribution facilities. Before the pandemic hit, how strong was the Des Moines market?Rupprecht: Our local economy was doing well. It was growing. We were in the middle of one of the longest expansion periods that I can remember. Unemployment was extremely low. Interest rates were low. All the fundamentals were good. There also wasn’t any overbuilding going on. There were a lot of apartments that were going up and a lot of construction taking place. But no one felt that anything was being overbuilt in our market. That is the good news about Des Moines as we work through this health crisis. We were in good shape before the pandemic hit. Companies were performing well and had strong balance sheets. I do think that has helped position us for this COVID-19 crisis. You don’t see massive layoffs and job losses right now like you saw during the financial crisis in 2008 and 2009. We have entered this challenge in a better position than we did during the last recession. I know it is difficult to predict the future, but what do you think the Des Moines market will look like when the pandemic is over?Rupprecht: How long was our strong market going to last? No one knew. It’s the same with the recovery. When will it happen? We don’t know. Everyone wants it to happen sooner rather than later. But this is driven by a health crisis. A lot depends on how long it will take to get through this. When will we find a vaccine? When will we get the number of cases down? When you have uncertainty in the economy, that makes people a little less likely to make long-term decisions. I do think this is going to be a shorter cycle than what we saw during the financial crisis. Hopefully we come out through this health crisis sometime next year. I think it’s a good sign that even during this pandemic people have been able to conduct business. It helps, too, that the economy was healthy going into this. That will help the recovery. What can companies do to ease the fears of people?Rupprecht: We do a lot of work in the office market. Companies are focusing on how they can provide a safe working environment for their employees. They want a healthier building. We have spent a lot of time over these past number of months looking at our existing buildings and any new buildings coming out of the ground to see how we can make them healthier. A lot has to do with implementing touchless features where you won’t have to touch doors or light switches. We’re looking at better HVAC systems. Those are so important today, whether you are looking at air exchangers or high-grade filtrations. We’re looking at our cleaning and sanitation procedures. The design of office space might change, too. People need to have less density and more space between workstations. We are seeing some significant design changes that might take place because of this pandemic. A lot of us are working from home today. Do you think people will return to the office in greater numbers, though, once the pandemic eases?Rupprecht: I think people adapted quickly and well to working from home. A lot of companies have been happy with how the transition has gone. I had done Zoom calls before this pandemic, but I’ve certainly done a lot more of them since. We’ve all learned how to communicate with each other without being in the same space. But people need real socialization. It is hard-wired in us. We are in the real estate business. Real estate is built on relationships. It is hard to have relationships virtually. You can still maintain them, but it doesn’t replace that face-to-face interaction. We miss out on that part of the relationship. You can’t read body language. You can’t read some of the different things in the room. You can’t whisper to someone, ‘This is what they really mean when they say this.’ You don’t bump into someone at the copy machine. The spontaneity is missed when you are doing things remotely. People might not feel as engaged. We need that in-person socialization. So I do think the office space will remain important.