Survey finds increased amount of retail space vacancy in Des Moines area

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

By Kathy A. Bolten

Nearly 23,000 retail stores closed in the United States in the past two years; another 10,000 to 12,000 are expected to close in 2021, according to CoStar Group, a global marketing research firm.

Some of the closings occurred in the Greater Des Moines area when national retailers like Pier 1 Imports and Stage Stores, which owned Gordmans, permanently shuttered their doors. Smaller retailers, including restaurants, have not been immune to the ravaging effects of the pandemic, which not only forced many stores to close in the spring but also drove an increasing number of consumers to online shopping. 

In Greater Des Moines, 7.3%, or 1.2 million square feet, of the area’s 14.4 million square feet of retail space was vacant at the end of the 2020, according to a CBRE|Hubbell Commercial market survey. That’s a slight increase from the previous year when 5.9%, or 851,909 square feet, of retail space was vacant.

The Business Record recently talked with three area retail experts about how retail space in the Des Moines area is faring. The panel consisted of: 

Aaron Hyde, vice president, Jones Lang LaSalle Brokerage Inc. in Des Moines.

Michael Smith, vice president, CBRE|Hubbell Commercial in West Des Moines.

Harry Wolf, managing
director, Buyers Realty Inc. in Des Moines.

Here’s some of what they had to say. 

We’ve been reading about retailers filing bankruptcy and closing stores nationwide. Let’s talk about Des Moines – how is it faring in the area of retail?

Harry Wolf: If we look at the spaces that were vacant or we’re in the process of backfilling, I’d say we’re doing relatively well when compared to the rest of the country.

Aaron Hyde: I’d second that. When we look around the state, there weren’t any major closures that I can think of that were announced last year from a large format. And leading up to that, we had some big boxes that closed in the last few years. But when you look at our big trade areas like the Galleria trade area [in West Des Moines] there’s been very little turnover there. All things considered, from the occupancy standpoint, I think we were doing OK.

Michael Smith: The thing that comes to mind for me is just how the impacts have been similar to the impacts to people. There are people who have been relatively unscathed; their jobs and businesses haven’t been affected by COVID too much. There are others who have been greatly impacted, financially. Thankfully, there’s been some economic incentives out there for businesses and in helping people, but what I would say is there are businesses that have been drastically impacted but we haven’t seen that impact yet. I think we’re going to see the other shoe drop in 2021.

There’s been other parts of the retail sector that have been relatively unscathed. I think about home improvement stores, grocery stores, drugstores, service providers. 

So there’s this bifurcation – some retailers that have been greatly impacted and some still to come, and then those that have been relatively unimpacted.

JLL and CBRE|Hubbell do quarterly market studies. How did 2020 compare with 2019 and 2018 in the area oF retail vacancies?

Smith: The thing that I thought was interesting is that Des Moines has always been fairly resilient economically. As you look at market density, I think that’s one of the things that has really impacted absorption. Where you have moderate densities – places like Phoenix and Austin – things look pretty good. When you look at high densities – New York and San Francisco – the absorptions haven’t been good. With Des Moines being on the lower end of that population scale, we’ve been fairly resilient. I think as we look to summer, we’re going to see quite a few more small boxes empty. One of the things I recently heard is that, nationally, they are expecting 12,000 retail stores to close in 2021.

Hyde: I think our neighborhood centers are strong and improving. Being in the middle of the country, our peaks and valleys are more like rolling hills. And while people and businesses have been affected by COVID, the loss of occupancy hasn’t been nearly as dramatic as on the coasts. We actually still have a lot of people come to town that have challenges finding space.

Wolf: If you start with the small tenant perspective, I think that any small-businessperson that is going to be able to hang on will hang on. Hopefully the federal government will give them the things they need … to maintain their employees. Hopefully, after the vaccine is [distributed]. we’re going to be able to get back to business.

I think the small-businessperson retailer is going to have a good chance of being just fine. I think the small soft-goods retailer – the clothing stores and places like that that you have to walk into – I think that’s going to be tough. We’re already seeing those people throw in the towel. From the perspective of a national retailer, Iowa is still viewed as an opportunity. I think, relatively speaking, we’re under-retailed.

When we look forward into 2021, and we have the vaccine, what will retail in the Des Moines area look like?

Smith: In communities whose residents have disposable incomes, I think you’ll continue to see growth. In areas … with older centers, those are going to get increasingly difficult to fill. I think we’re going to see really interesting differences market to market, and some of the more inner-city locations are going to have more challenges. As you go out into those areas that are still growing, where people are building houses and densities are going up, the centers will fill up.

Obviously, restaurants have been hugely impacted by COVID. Still, the biggest demand we are seeing is the folks out there looking for restaurant space. Generally they’re looking for second-generation space, but sometimes they’re starting from scratch, and that gives you some encouragement that the entrepreneurial spirit is still alive out there. … There’s been more activity in restaurants and bars among other things than I would have ever anticipated. It’s good to see.

Hyde: Different types of retail need different areas. You look at Grimes, a lot of retailers that are going there are convenience-type things. In Prairie Trail in Ankeny, you have a lot of local boutiques. When you look at the national [retailers], the ones that are publicly traded are the ones that are quicker to cut stores. 

Our town as a whole, when you look at all the different pockets, [is] pretty resilient. I think everyone wants to get back to normal. Sales may not be what they were pre-COVID right away, but people are getting out there.

One of the things we haven’t talked about is savings rate. Before COVID, people were saving 6% to 8% of their personal income. You saw that go up to 32% during COVID. Now people want to get out there and do things. And I keep hearing people talk about this Roaring ’20s concept. I hope they are right.

There are vacant retail spaces in the Des Moines area now. What are we going to see fill that space?

Hyde: The users that are out there right now looking for space are medical and auto-related and, surprisingly, restaurant users.

Wolf: A few years ago, [a sporting store chain] closed and the Water Tower shopping center ended up with a large vacancy. It took time, but we re-tenanted that [space] with three retailers who really wanted to be on the University Avenue corridor. In the end, there was an improvement to the shopping center. I think we’ll continue to see that sort of thing happen.

Gordmans closed last year [at the Westown Shopping Center] and Floor & Decor is going in there. This is probably one of the smallest markets in the country that they’ve gone into. That deal was worked on for quite a long time. I think that speaks very well [for the Des Moines area] from the standpoint of growth and remodeling existing space. 

A couple years ago, J.C. Penney’s closed their home store [in the Westridge Shopping Center]. That’s being re-tenanted into a Burlington Coat [Factory]. We’ve got another spa tenant coming in that will bring that back up to 100% occupancy. I’m optimistic that we’re going to continue to work hard … and keep our occupancy in Central Iowa pretty strong.

Will some of this vacant space be used in different ways? 

Smith: Yes. That’s one of the key issues. … Some of these retail centers have a great presence for service industries. They have the parking, they have the signage amenities service industries aren’t accustomed to having. Rents have come down. … I think you’re going to continue to see that conversion.

What are landlords doing to keep tenants in place or attract new ones? 

Wolf: It’s expensive to replace a tenant. It can also cost some money to keep a tenant, but in the long run, keeping a good tenant in place, well, you’re going to be way ahead as far as a return on your investment. 

Hyde: We’ve got guys that come in from the coast and they’re expecting a giant incentive plan, but for the most part, the terms haven’t been dramatically different. The landlords worked really hard to keep their existing tenants and help them along [during the pandemic]. The biggest … request I’ve seen is [inserting] some form of a COVID language or pandemic, epidemic language [in contracts] that would allow the retailer – if the government mandated some form of restriction – to get some sort of reduction of base rent during that period. It doesn’t always fly, but it’s the most common one I’ve seen.

Any final thoughts on retail in the Des Moines area in 2021? 

Hyde: 2019 was a year of interaction and engagement. 2020 became all about safety and convenience, and 2021 will be about convenience. I think we’ll eventually get back to the interactive, the experiential. I think that’s what people want. What’s that timeline? Your guess is as good as mine, but I know everyone’s itching to get out.

Wolf: I think we are fortunate

 that we have great corporate retailers here. The example that they’re setting ... [is] the reason other large retailers are finding Iowa to be a good destination, a profitable destination. That speaks well to the foundation being in place.  We’re all learning to survive through this and I think we’re ready to get out of the survival mode. I think as the weather improves and our sense of safety increases, I think we’ll see a quicker return to normalcy than [what occurs nationally].

Smith: I think 2021 may be the time the other foot drops in some respects. There’s clearly pressure on some of the smaller retailers or smaller restaurants that is going to come to pass. As I mentioned earlier, 12,000 retail businesses are anticipated to close in 2021. That obviously is going to have a huge impact on real estate. But again, I feel like there’s some resiliency out there. 

I hope we see cities helping some of these retailers whenever they can. I know it’s difficult to provide incentives and that [cities] have had some tough financial times themselves. I hope they don’t lose the appetite for that, particularly in those areas that are struggling.