HEARTLAND SNAPSHOT, AUGUST 2011

Des Moines, Iowa Multifamily Market

Rich Krause

Earlier this year, CB Richard Ellis|Hubbell Commercial published its 41st annual “Metro Des Moines Apartment Survey.” The survey shows occupancy in the Des Moines market taking a dramatic shift. The vacancy rate throughout the Des Moines metropolitan area as of January 2011 was 5.5 percent, a decrease of 2.5 percent from a year ago. The drop in vacancy rates was the largest one-year drop since 1999. This is the first time vacancy rates have fallen below 6 percent since 2002.  Across the Midwest and the nation, we are seeing similar drops in vacancy.

Average rental rates increased 4.9 percent for a two-bedroom apartment and 7.5 percent for an efficiency apartment. Only 20 percent of respondents to the Metro Des Moines Apartment Survey are currently offering concessions. In past surveys, rental rates did not reflect concessions, but this year, CB Richard Ellis|Hubbell Commercial is including them. Thus, rental increases are even greater than they appear.

According to REIS’ apartment survey, vacancy rates in the Des Moines metropolitan area dropped 50 basis points from 4.8 percent at the end of 2010 to 4.3 percent at the end of the first quarter of 2011.

These vacancy rates are the lowest in the Des Moines market since 2002 in which a tremendous amount of new units were delivered to the market, causing vacancy to increase dramatically over the next two years. At that time, credit markets were quite different than they are today. CB Richard Ellis|Hubbell Commercial looks for additional development to come online during the next 12 months but nowhere near the level witnessed from 2002 to 2003. Permits have been issued for 485 units — 365 market rate apartments and 121 tax credit units. Last year, there were approximately 963 units added to the rental market. Of those, 391 units were market rate apartments and 572 were tax credit units.

CB Richard Ellis|Hubbell Commercial looks for the trend of improving occupancy and increased rental rates to continue through at least the end of 2011. We should see the job market improve and a reduction in the percentage of home ownership. In today’s economy, young adults are trying to remain flexible in their search for employment. Young adults are choosing renting over buying and are unwilling to make long-term commitments. They have the confidence to sign a one-year lease but not commit to a 30-year mortgage. To apartment property owners who suffered during the easy credit policies over the past decade, this is music to their ears.

From 2003 through 2007, the Greater Des Moines market, much like other markets, saw apartment properties trade at record levels. From 2008 through 2010, transactions fell off dramatically with a reduction of transactions of more than 60 percent from the peak in 2006 to the low in 2009. 

With credit markets easing and rental markets improving, CB Richard Ellis|Hubbell Commercial anticipated increases in transaction volume this year. However, this has not happened. Through the first half of 2011, the number of transactions has only increased slightly due to sellers reaping the benefits of reduced vacancy rates combined with few options for their capital in other real estate sectors. Clearly, the apartment market is the preferred real estate sector. On the national level, apartments traded at nearly double the rate of 2009.

CB Richard Ellis|Hubbell Commercial still looks for the Des Moines market to heat up within the next year. We have gone from few buyers to, once again, a surplus of buyers and few willing sellers. Currently, there is not enough inventory to meet the demand.

— Rick Krause is a senior associate with West Des Moines, Iowa-basedCB Richard Ellis | Hubbell Commercial

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