Report: 90 percent of downtown office building owners to return

More than 90 percent of downtown Cedar Rapids office building owners are planning to restore their buildings to their pre-flood use, according to a new report by NAI/Iowa Realty Commercial.

The company offered a generally upbeat assessment of the Corridor commercial real estate market in its annual report released Tuesday. It said the retail, warehouse and suburban office markets remain generally healthy despite the damage wrought by last year's flood and the recession.

The June 2008 flood in Cedar Rapids and Iowa City actually helped some markets, increasing occupancy of some warehouse and commercial office buildings, at least temporarily. Suburban Cedar Rapids office vacancy rates temporarily plunged to almost zero, and have stabilized at about 10 percent, the report said. That is much better than former Iowa hot spots such as West Des Moines.

Rental rates have remained steady for the last few years, according to the report.

One lingering concern is the impact on the downtown office lease market from the collapse of Alliant Energy's steam-heating plant in the flood.

Many downtown office buildings have historically been “gross leased,” meaning that expenses such as heat are rolled into the monthly rent, according to Kirk Hiland, NAI/Iowa Realty Commercial managing partner. That was partly because steam heat from Alliant was relatively inexpensive, and partly because it was difficult to meter the amount of heat used by each tenant.

After installing new individual heating systems for each building, Hiland said, building owners may be forced to start billing tenants for heat.

“How that will translate into rents is yet to be seen,” Hiland said.

The recession did not hammer retail occupancy levels in the Corridor as it did nationwide. Major retail centers such as Coral Ridge Mall and Lindale Mall remain almost fully leased, despite the bankruptcy of General Growth Properties, the owner of Coral Ridge.

Still, retail leasing and construction activity in the Corridor is at its lowest level in many years because of tight financial markets and sluggish consumer demand.

“Retail nationwide is kind of a dead duck,” Hiland said. “There are going to be no big movements in retail in the foreseeable future.”

One retail development the report foresees is the relocation of Barnes & Noble's Cedar Rapids bookstore to Lindale Mall. That is expected to leave some space to fill at Northland Square, the bookstore's current home.

The report said occupancy remains strong at Sycamore Mall, which was sold to California investors in late 2008, and that a Texas investment group that recently acquired Collins Road Square in Cedar Rapids still has about 27,000 square feet left to lease.