Report: Industrial development in Cedar Rapids excels while demand for office space remains low

CEDAR RAPIDS — The Cedar Rapids metro commercial real estate industry “continued to excel” in 2024, despite persistent challenges related to remote work patterns established during the pandemic. That’s according to a real estate report published this week by GLD Commercial.

This is the fourth annual commercial real estate report produced by GLD, which is headquartered in Cedar Rapids.

"The commercial real estate industry continued to excel,“ the report states. ”Industrial leasing and multifamily development persisted while the office market continued to undergo changes due to the widespread adoption of remote work in 2020."

Erica Seelman, a principal at GLD, said the report illustrates Cedar Rapids' "vibrancy and resilience" considering the devastating flood and derecho the city endured during the past 20 years. Seelman believes the annual report's benefit is "it brings to the table what is going on — a look behind the scenes. It shows Cedar Rapids is a good place to conduct business and develop opportunities for the future."

The report is divided into four submarkets: central business district office; suburban office; retail/service; and multifamily/mixed-use.

The 2024 bright spot in development comes from the demand for data centers, which "has risen exponentially." There are two data centers planned for Cedar Rapids, both in the Big Cedar Industrial Park.

"With its massive power demands, few sites can deliver on this requirement. Iowa’s first certified mega site, Big Cedar Industrial Park in Cedar Rapids, offers cost effective land and utilities and has the potential for $1,326,000,000 investment from Google and QTS Data Centers in 2025," the report noted.

Seelman said she believes "industry and marketing will remain robust" in 2025, with a continuing low vacancy rate in distribution and warehousing.

Downtown, suburban office space demand continues to lag

If there is an underachiever identified in the report, it is in the office space market. GLD reports vacancy rates for central business district office space increased from 15.5 percent at the end of 2023, to 21.7 percent in the fourth quarter of 2024.

“Despite return-to-office mandates, not all employees are willing participants, meaning remote/hybrid work is here to stay,” the report states. “This will continue to keep the daytime population below pre-pandemic levels, adding to the challenges of [central business district] service establishments.”

Suburban office space also has seen increased vacancy rates, according to the report, from 20 percent at the end of 2023, to 23.7 percent in the fourth quarter of 2024.

The Gazette reported in November that developers of downtown properties said instead of demolishing underperforming buildings, they were renovating them by converting some empty office space downtown into apartments. That has continued to happen, the GLD report notes.

Cedar Rapids saw 580 new rental units added in 2024

With a shift downtown to housing, the report's mixed use market overview found that "higher interest rates and shifting purchasing power encouraged many prospective homebuyers to explore the flexibility and convenience of leasing, contributing to a strong rental market.“

"Approximately 580 units were added to the Cedar Rapids metro during 2024 with over 1,000 units planned for next year. The average vacancy rate for existing multifamily properties ranged from 5% (newer construction) to 10% (older buildings). The 11 multifamily buildings sold throughout the year were constructed between 1963 and 1978 and included 854 units.“

Despite a demand for multifamily housing — especially properties that offer many amenities — new construction is slowing, the report notes.

Looking to the future, the report added, "The multifamily sector has experienced a significant construction boom in recent years, reflecting strong demand. While the pace of new projects is beginning to moderate, the ongoing need for quality rental housing remains robust, driven by a growing population and the preferences of households seeing flexible living options and amenity-rich properties. Affordable housing continues to be a focus throughout the metro area."

Asked if there is an affordable housing shortage, Seelman said she’s more versed in commercial property, but thinks there is a need. Government and developers "must be more creative to make it happen,'' she said.

Retail market stabilizes

Limited new construction — due to e-commerce’s domination of retail — has created opportunities for retailers and restaurants to move in to existing spaces in the metro, the report states.

“First Avenue/Hwy 151 saw a considerable amount of activity throughout the year,” the report states, noting Hy-Vee’s decision to close its First Avenue store, as well as the opening of more businesses — Pickle Palace, Armoa Pizza and BarTini — in Kingston Yard.

The report also noted that big box retailers are partnering with complementary brands to reduce costs, using the example of Target and Ulta.

Download: 2024 Market Report_FINAL_rfs (1).pdf