Interest from developers, investors grows as Amazon increases its footprint in Central Iowa

Still, said one broker, some people are having ‘challenges finding space’

By Michael Crumb

Photos By Joe Crimmings

When Amazon announced it would open a delivery station in Grimes last year and followed that up with the construction of a fulfillment center in Bondurant, the Greater Des Moines region was bracing for what would come next.

What came was increased interest from investors, developers and other companies that could benefit from Amazon’s presence in the metro in what is commonly known as the Amazon effect.

Amazon also announced in late 2020 that it would be building a sortation center adjacent to its fulfillment center in Bondurant, deepening the company’s footprint in the Central Iowa landscape.

For those who deal with developers and investors, their phones and emails have been busy.

“We’re talking to as many as three groups a week that contact us wanting to underwrite the market for one of two things,” said Marcus Pitts, managing director of JLL, a real estate firm focused on industrial and commercial development with an office in Des Moines. “One is ground-up industrial development … and Amazon comes up in every one of those conversations because it’s a big name for Central Iowa.”

The second situation in which Amazon is brought up is with investment groups that are looking to purchase an asset in Central Iowa and then underwrite the asset, Pitts said.

“Amazon is part of those conversations as well,” he said. “Whether these groups are looking at ground-up construction or investment sales, it’s a very prevalent topic of conversation.”

Short-term, he said it’s difficult to quantify what the effect of Amazon’s presence has been on the market so far.

“It’s really hard to just say if Amazon comes to a market, people are going to lease another million or 2 million square feet of warehouse or whatever,” he said. “I’ve heard anywhere from one-to-one to multipliers as high as 2½. There’s various multipliers in there and every market is a little different, so I don’t think there’s a blanket number that you can say if Amazon put a 3 million square feet in Bondurant that means 6 million square feet is going to be needed. I’ve heard numbers but not seen a blanket number that we’ve ever felt comfortable putting out there.”

But the effect extends beyond just commercial and industrial development and includes job creation and the development of homes, both single-family and multifamily, in areas near where Amazon facilities are located, Pitts said.

One factor, at least in Central Iowa, is that Amazon leases its buildings, which Pitts said “opens up the institutional investor who wants to come in and purchase [those facilities] because they like the credit of the tenant, they like the lease term, they like the Central Iowa market, and those are typically big, big firms. … And when those big firms come to a market, then you get the national developers that are buying in other markets. It perks their ears up.”

“Having Amazon in Central Iowa definitely accelerates that, as well,” Pitts said.

Kevin Crowley, chief operating officer and manager for NAI Iowa Realty Commercial, said Amazon’s presence will create opportunity in the region for companies that provide products Amazon needs, such as the boxes and tape Amazon uses and the products that are shipped.

Crowley said Amazon has 2.8 million square feet in the metro area, and he believes that will create at least another 2.8 million in industrial space to support what Amazon has in Central Iowa.

He said industrial space costs between $60 and $80 a square foot to build. At the high end, that would represent about $224 million in new development, Crowely said.

“It is a significant number, and the trend in Des Moines really just reflects what’s going on throughout the country,” he said. “If you talk to industrial brokers in places like Columbus, Ohio, and in Kansas City … you start seeing and hearing the same stories. When you ask about what the Amazon factor is, is it 1-to-1, is it 2-to-1? With Amazon, we’re thinking we’ll get at least 1-to-1 at a minimum, so if Amazon is 2.8 million (square feet) we can expect 2.8 million square feet in new development that will support that Amazon facility.”

He said some development can already be attributed to the Amazon effect.

One example is a 74-acre site bought by Van Trust Industrial Developers in Altoona that Crowely said was purchased primarily because of its proximity to Amazon in Bondurant.

Crowely said Graham Group has already been expanding over the past five years with a large tract of land near Facebook. He said about half of the tenants in that industrial area are doing work for Amazon.

Amazon, he said, also amplifies growth that has been seen in the logistics industry since the industrial park was built in Urbandale 45 years ago.

“Amazon is creating a new market around that,” Crowley said. “But it is part of a national trend as people’s shopping changes.”

He said plenty of land exists in the metro area for industrial development, and communities have been receptive to the facilities, which generate taxes and jobs for the region.

Investors also like the facilities because they provide a steady, safe return for their money, Crowley said.

He said Central Iowa is a “sweet spot” for industrial development because of its proximity to Interstates 35 and 80, and “so just like the [Facebook and Google] data centers found in Iowa, I think logistics companies are going to be attracted to Iowa, too.”

Brian Crowe, executive vice president of economic development at the Greater Des Moines Partnership, said Amazon’s presence has strengthened the region’s logistics and distribution sector.

“Our region has continued to see strong interest from companies looking at warehouse and light industrial projects even through the pandemic, and Amazon’s presence helps solidify our reputation in landing those projects,” Crowe said.

Pitts, of JLL, said it will be interesting to look back five or 10 years from now to see what growth has occurred because of Amazon’s presence. He believes growth will continue in Ankeny, Johnston and Grimes, but he also thinks the southeast market is prime for development.

“I think the unlooked area on the industrial side [will be] as you go south from Bondurant and Altoona and make your way down into Pleasant Hill and Carlisle, I could see some of that area really growing as well, as sites continue to get gobbled up on the northeast and northwest areas of the industrial market,” Pitts said.