Cedar Rapids sees strong industrial, multifamily housing development in 2022

CEDAR RAPIDS — Development of multifamily housing and massive industrial projects soared in 2022 while office space continues its slow rebound from the “significant repercussions” of COVID-19 pandemic, according to a new report from GLD Commercial.

The Cedar Rapids commercial real estate market was “stable and improving” in 2022, said Adam Gibbs, GLD Commercial vice president, and indications so far point to 2023 being another active year.

It is possible, he said, that rising interest rates could impact some of the activity, but it’s too soon to tell.

“The wheels turn slow in our business. Interest rates are rising now, but a lot of the deals that are closing today — whether it's an investor buying or it's a business owner that decided to buy a new building — they probably started that process six months ago, and in an interest rate environment that was more aggressive,” Gibbs said.

The report, released Thursday, was compiled using data from the Cedar Rapids Association of Realtors and the Cedar Rapids and Linn County assessors.

It tracks 2022 occupancy and rents for the city’s central business office district; suburban offices; the industrial market; retail and service properties; and multifamily and mixed-used facilities.

Central business district shifting

Office space in Cedar Rapids’ central business district is likely to continue to clear out as corporate tenants finalize remote work policies, so vacancies are likely to continue rising, the report states.

This approximately 3.4 million square-feet of office space ended 2022 with a vacancy rate of 14.03 percent — up from 12.65 percent at the beginning of 2022.

Shifts are underway in downtown real estate while the work-from-home environment has disrupted major employers who make up much of the urban core.

Examples of office space being converted to housing include the upper floors of the Iowa Building, 211 Fourth Ave. SE, into 40 housing units; a former real estate office at 411 First Ave. SE into 40 units; and vacant space at the Dows Building, 200 Second St. SE, into 24 housing units.

As small to mid-size employers require employees to be in the office more, GLD’s clients seem to be focusing more on the workplace environment, Gibbs said. The report encouraged a focus on the “human element” and amenities to appeal to workers.

Gibbs anticipates some empty office space would continue to be converted into housing, but said the downtown would still need a mix of residential and commercial uses for optimal activity.

A sale is pending on the former Guaranty Bank building at 222 Third St. SE, presenting a 101,302-square-foot adaptive reuse opportunity. It was listed for $3.1 million.

The Witwer building at 305 Second Ave. SE sold to Foundation 2 for use as its new headquarters. And the city of Cedar Rapids paid $2.5 million for the United Fire Group-owned Rush Nicholson building at 101 First Ave. SE.

Suburban office vacancies double

Like downtown office space, offices on the outskirts of Cedar Rapids also are in flux.

The suburban office market of approximately 5.9 million square feet saw its vacancy rate roughly double in 2022, going from 8.06 percent to 17.57 percent.

“Corporations will continue to reduce overall square footage as they look for more flexible lease terms, including expansion, contraction and pandemic clauses,” the report said. “Lease rates will gradually decline as additional space becomes available.”

Unlike many downtown office vacancies, suburban offices may not lend themselves to residential conversion, Gibbs said. Alternative uses — whether that’s entertainment or retail — still are being explored for many of these spaces, such as the former Transamerica campus on Edgewood Road and 42nd Street NE.

Industrial activity likely to level off

Vacancies remained low in the industrial market, which encompasses about 12.7 million square feet of real estate.

The vacancy rate ended at 1.17 percent in 2022, fluctuating as newly built facilities came online and large existing spaces were sold or leased, according to the report.

Major new projects got underway such as Sub-Zero’s $90 million, approximately 400,000 square-foot light manufacturing facility at 10015 Sixth St. SW near The Eastern Iowa Airport, for instance. Other facilities sold, including The Gazette’s Color Web printer building at 4700 Bowling St. SW, which is now owned by Raining Rose.

The industrial category encompasses existing and in-progress warehouse, flex, commercial and small shop properties, but not owner-occupied, special-purpose manufacturing sites.

Gibbs said the pandemic-induced e-commerce boom, as well as company facility upgrades to maximize efficiency while contending with labor shortages, fueled 2022 activity. That demand likely will stabilize in 2023.

“Rising interest rates, coupled with the potential for an economic recession, also will slow the rate at which speculative new construction is being built,” the report states.

Retail/services market stabilizing

The retail market should stabilize throughout the year as customers return to brick-and-mortar shops, the report said.

The approximately 9.3 million square-foot retail/service market ended 2022 with a vacancy rate of 6.03 percent, up from 4.72 percent when the year started.

“While most shoppers turned online during the pandemic, boosting e-commerce and the need for increased warehouse space, many of those shoppers are returning to the store looking for an experiential retail experience,” according to the report.

New retail development came online near the Blairs Ferry Super Target in the northeast quadrant and at Westdale in the southwest quadrant. Some are in the works, such as the 84-room Home2 Suites hotel at Westdale.

Multifamily, mixed-use housing faces high demand

Multifamily housing continues to be in high demand as housing remains in short supply and interest rates pressure the rental market, keeping more people from buying homes.

The analysis looked at area multifamily buildings or mixed-use complexes with at least 12 units and found record-low vacancy rates. Most Class B and C properties hovered at or slightly above 5 percent vacancy. Newly built apartments typically were leased to 95 percent occupancy within the first three months of completion.

Major projects in the works include the $36 million transformation of the former Loftus Lumber site at 900 Third St. SE into DOMOV, a five-story mixed-use building with 186 multifamily units and 11,000 square feet of commercial space.

Other projects also are underway, including the 44-unit, four-story affordable housing complex at 627 Sixth St. SE, Cedar Rapids Brickstone — a partnership between Hatch Development and nonprofit Foundation 2.

“While rents have increased over the past few years, it appears they are at or near their peak and will begin to stabilize,” the report said. “While the cost of building materials has decreased, the cost to construct new properties is not supported by current market rents.”

Tax incentives would assist in bridging the gap between construction costs and achievable market rents, according to the report.

The 2022 report can be viewed at gldcommercial.com.

Comments: (319) 398-8494; marissa.payne@thegazette.com