Potential, challenges define Corridor commercial real estate market

The future looks bright for commercial real estate development in the Corridor as the effects of the COVID-19 pandemic continue to fade, area development officials agree. Yet there are still a few limiting factors in play that might cause those same officials to “wear shades” to mitigate the glare of a sunny recovery. “It seems like over the last 15 months, businesses had their foot on the brake as they were trying to figure out what their next steps were going to be, with a lot of uncertainty in the air,” said Austin Korns, director of business development for Iowa City Area Development (ICAD). “And now they’re able to kind of put (their foot) back on the accelerator with expansion projects, relocation projects, things of that nature. I’ve only been here for three months, so it seems normal for me. But I’m told that it’s a lot of projects coming through the door all at once, which is exciting. With a lot of things come coming at us, we can hopefully hit on a few and have some good news.” Ron Corbett, vice president of economic development for the Cedar Rapids Metro Economic Alliance, said he shared that general sense of optimism for a regional economic rebound. “We’re seeing a nice pipeline of existing businesses that are looking at expanding, and a pipeline for business attraction as well,” Mr. Corbett said. “Those are great situations for any community to be in.” Tom Banta, vice president and director of strategic growth for ICAD, said he expects a surge of development activity in upcoming months as pandemic restrictions continue to be lifted and consumers gain optimism about an economic recovery. “Activity has definitely picked up in the last few months,” Mr. Banta said. “There certainly was some pent-up demand, I believe, given the pandemic. But I do believe there’s cautious optimism. Employers are still trying to figure out their return to the office strategies, and I think that’ll be a little messy as it unfolds in the coming months. It’ll likely be August, September before a number of these organizations get more comfortable bringing people back in and the dust settles — what percentage of people are on-site, what does hybrid look like? Projects are heating up in conversation, and they’ll probably start to activate as the year progresses and we get closer to some sense of normalcy.” Mr. Banta also said he’s hopeful that the trend toward lower COVID-19 cases and hospitalizations continues its current arc. “There’s always the possibility that there’s another mutation, and we go sideways,” he said. “I certainly don’t want to pretend that that couldn’t happen. But I’m encouraged by the activity thus far. There’s still plenty of uncertainty, but things are getting more certain.” Mr. Corbett pointed to one example of increasing interest in commercial real estate projects. He said Cedar Rapids has recently received a Request for Proposal (RFP) from a company looking for a “plug and play” facility to repurpose as a call center, and the city has submitted the former Honeywell International building downtown for consideration. The 70,000 square-foot building was vacated at the end of 2019 when Honeywell closed its local operations. “We’re in a multi-state competition for this client,” Mr. Corbett said. “We don’t know if that’s going to be successful, but we have to keep trying. When these requests for proposals come from the state, we’re very aggressive at returning them all and submitting either existing buildings or in some cases, greenspace. You don’t always know how successful they’re going to be. But you can’t win if you don’t try. We hate to see buildings like that sit vacant for extended periods of time.” Mr. Banta highlighted other factors that could propel commercial development, including low interest rates and a high volume of available land for development, particularly along the Interstate 380 corridor north of Iowa City; the Forevergreen Road area; Tiffin, one of the state’s fastest-growing communities; and the CID Superpark near The Eastern Iowa Airport. “With ICAD, our primary focus is interstate commerce companies,” he said. “With many of the players in that space, our manufacturing companies, logistics, a number of those companies performed fairly well last year. It wasn’t that they didn’t have some setbacks or challenges. But many of those organizations were able to hit profit numbers, and in certain cases, hit top-line growth and profitability numbers that they had not seen in years. Those organizations, for the most part, have come out of this in a pretty strong position, and even in a growth state, in many cases.” “We have the land to build those types of projects,” Mr. Korns added. “We see that pretty consistently, in quite a few different parts of Johnson County and the surrounding counties, there are plenty of areas that fit the bill. We just have to connect all the other dots.” Still, a couple of mitigating factors could provide challenges to development plans – a shortage of available and qualified workers, and skyrocketing costs of construction materials. For example, Mr. Banta said he recently heard about a developer who was frustrated that prices of construction lumber had soared by 36% compared to the cost quoted for the same lumber in February – and those costs were already up by 30% compared to last fall. “I think that might slow things down in the near term for what would be perceived as a hot development-ready market,” he said. “The desire to develop and the ability to develop may be a little misaligned from that perspective. But I think all those things will sort themselves out in relatively short order. And those are relatively easy to overcome, compared with lack of availability of land or high interest rates.” Mr. Corbett noted that Cedar Rapids has fielded seven RFPs already this year for business expansion projects – a positive trend, to be sure — but shared Mr. Banta’s concerns about employee shortages and construction costs. “Sometimes you have some headwinds, and sometimes you have some tailwinds,” he said. “I would concur that rising costs of construction is certainly a headwind, and I actually think employment availability is an even stronger headwind. People have read about the restaurant industry and how they’ve struggled to get workers back. But it isn’t just the restaurant industry. It’s really across the board that we’re seeing all our employers are struggling, professionals in the engineering field, construction, warehousing, distribution. It really is across the board, and it was a huge problem for Iowa, even pre-pandemic.” All in all, Mr. Corbett said, trends continue to favor a rebound in commercial development, due largely to the Corridor’s penchant for growth. “We’re an entrepreneurial people,” he noted. “There’s a certain segment of society that always has this dream of owning and operating their own business. The pandemic paused all that because nobody really wants to start a business when there’s so much uncertainty. But I think as we appear to be coming out of the tail end of everything, you’ll start to see more startup businesses. We’re already hearing stories from the NewBo and Czech Village area that they’ve got four or five new shops coming for the rest of this year. When you hear anecdotal stories like that, it certainly makes you feel good about the future.”