HEARTLAND SNAPSHOT, FEBRUARY 2008

Quad Cities

The Quad Cities market has a long history of manufacturing, with heavyweights such as John Deere headquartered in the area. However, over the past 15 years, the area has evolved to include a multitude of service industries and the companies that support them. The marketplace, which includes the cities of Moline and Rock Island on the Illinois side of the Mississippi River and the cities of Bettendorf and Davenport on the Iowa side, also has a history of stability typical of many Midwestern cities.

“We don’t see lots of peaks and valleys; we see rolling hills,” says Jeffrey Miller, a partner with Davenport, Iowa-based Premier Partners.

Right now, retail is the most active of all of the sectors, but Miller does not consider it as much of an economic health indicator as sectors such as industrial or office. The market also seems to be chasing the logistics industry right now, including the suppliers of these companies.

Growth is also being seen in the medical sector, specifically in the assisted living and medical office segments, as well as the multifamily sector. Both of these sectors have not seen development in the area recently, and the projects in the works are large. According to Miller, one multifamily project under development contains 1,500 units, and there are currently two or three assisted living facilities being constructed in the Quad Cities area.

In the industrial sector, the big trend is for companies to leave the older facilities they currently lease, and move into newer, owner-occupied facilities.

The office sector has not seen any speculative development lately, with many users new to the market choosing, instead, to build and own properties. FJ Russell, which recently finished the Merrill Lynch building in Davenport, is constructing a 35,000-square-foot office building for the engineering entity of Dallas-based Grove Systems Corp. AT&T has also recently completed a new 30,000-square-foot call center located in Davenport.

In Moline, local developer Rodney Blackwell has proposed an ambitious new project.

“Blackwell has announced plans for a 20-story office, retail, condo building in downtown Moline, which, to me, is pretty aggressive,” Miller says.

The main tenant will be Koné Elevators of Sweden. Blackwell would acquire the company’s current Moline facilities, and relocate Koné into the new building, which will also include speculative residential, office and retail space.

“It’s very substantial for our market, and any problem that may exist here is that there’s a substantial amount of absorption over a number of years that would take place if you were to build 20 stories of office and retail,” Miller says, adding that he is not sure if the market would be able to absorb the space in a timely fashion once it is brought online.

For the market, the main retail and office development area remains the Interstate 74 corridor that runs between Bettendorf and Davenport, and into Moline. But a new development project may open up another area. The new West Rock River Bridge is being constructed on the Illinois side of the river. It will come off the John Deere Expressway and run parallel to Rock River Bridge.

“[The bridge] is now opening up substantial development areas south of Moline into the Milan area,” Miller says. “It’s a wonderful opportunity for traditional retail, office and residential development [to expand] into areas that have not been served previously.”

Another substantial project is under development in Rock Island. The Casino Rock Island, a casino boat located in downtown Rock Island, is moving its operations to the interchange of Interstate 280 and Illinois Route 92. The $170 million project will prove to be substantial for the Quad Cities economy.

Vacancy rates have remained stable in most of the sectors.

“Supply and demand isn’t really affecting us right now. We’re not seeing a lack of supply driving pricing up,” Miller says.

The office sector, depending on the facility and the market, is seeing vacancy rates ranging from 8 to 15 percent. Industrial rates also remain low, measuring from 8 to 10 percent for first and second-generation buildings. Miller says he does not like to include the older World War II-era industrial buildings that prove inadequate for today’s tenant needs.

Miller sees the medical office and assisted living sectors remaining active in the near future, as product finally comes online in an underserved market. The corridors served by Interstates 80, 74 and 280 will also see a good share of market growth in the near term.

“I think we’re going to see limited growth in our Class A office markets,” he adds. “I’m hoping to see a 5 to 10 percent increase in our industrial development, which is a good indicator of new jobs and a robust economy.”

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