Nearly 17% of office space in downtown Des Moines is vacant, the highest vacancy rate since 2007, according to JLL market reports.

But, even with the higher-than-normal-office vacancy rate, downtown’s economy is strong, Carrie Kruse, the city of Des Moines’ interim economic development administrator, said during a panel discussion on commercial real estate.   

“I see housing as a key component to solving some of the vacancy issues downtown,” Kruse said. “Vacancy rates for housing are still incredibly low – 4% to 6%, depending on what reports you read. That’s still a pretty tight housing market downtown.”

Apartment units in new downtown housing projects are filling quickly, an indicator that a demand for living downtown still exists, Kruse said.

Kruse was one of six people who participated in a panel discussion about commercial real estate during the Business Record’s recent Annual Commercial Real Estate forum attended by over 420 people. Other panelists included Jesse Bunney, director of operations, Lawmark Capital; Chris Costa, president and CEO, Knapp Properties; Craig Erickson, managing director, Shive-Hattery Inc.; Rachel Wacker, executive director, Greater Dallas County Development Alliance; and Ryan Wiederstein, broker/owner, WB Realty.

JLL’s market report for the first quarter of 2024 shows that over 1.7 million square feet, or 16.8%, is vacant in Des Moines’ central business district. The downtown area has over 10.5 million square feet of office space, which doesn’t include government or medical offices. The overall office vacancy rate in the Des Moines area was 16.5%.

The increase in vacancy in the central business district can mostly be attributed to Wells Fargo relocating many of its downtown office workers to its West Des Moines campus, according to Eric Land, research manager for JLL.

Kruse said it’s unlikely the vacant Wells Fargo buildings at 800 Walnut St. and 206 Eighth St. will be converted to housing.

“I have a hard time seeing housing as being the highest and best use for those buildings,” Kruse said. “They are newer, more modern office buildings” with large open spaces that make it more difficult and expensive to convert to housing.  

“I think it’s going to take creative, bold solutions to figure out how to break those large floor plates into smaller, more approachable spaces for users,” Kruse said.

One of the downtown buildings being converted to residential is the Financial Center at 606 Walnut St. Lawmark Capital, which owns the building, is adding 198 apartment units to the lower 15 floors of the Financial Center. The building’s upper 10 floors are offices.

A restaurant is also planned on the street level of the building.

“We’re trying to create a really nice ecosystem [that includes] nice places to work, eat, live and thrive,” Bunney said.  

As an increasing number of people begin living downtown, it’s important to have amenities to support residents, said Costa. Hy-Vee, which opened its downtown grocery store in 2017, pared its hours in February. The Des Moines City Council this week approved new hours for the grocery that must stay in place for two years.

“I think it’s in the city’s best interest to make sure that we don’t have a grocery store just for the term of the economic development agreement cycle,” Costa said. Knapp Properties owns the building in which Hy-Vee is located.

“Let’s ensure that we’re able to provide for a downtown grocery for the next 50 years. … We have people with means who want to live downtown. We will continue to try and find ways to place-make and provide opportunities as a community that goes beyond the shopping experience.”

Other topics discussed during the forum included:

Converting office space to data centers: Artificial intelligence “is really starting to drive the data centers to maximum capacity,” Erickson said. “We have owners [in other parts of the country] that have a large corporate office that is now empty. The data center conversion to those owners makes a lot of sense. Typically, these offices have a bottom level that had some form of [outdated] data center in them. We will have these clients come to us and ask about” converting the office space to small data centers. “That’s part of the solution for filling vacant office space.”

Small business support: The alliance “is seeing a concentrated effort on small-business support, especially on the suburban side but also on the rural side,” Wacker said. “The alliance is going to continue to look for creative ways to assist small businesses, whether it’s with consulting or with financial resources.”

Industrial development: WB Realty is developing South Branch Business Park in West Des Moines and Dunn Industrial Park in Norwalk. Both are light industrial parks. Construction of the first warehouse in South Branch is nearly complete, Wiederstein said. “We are getting more interest in purchasing the warehouse than leasing it. … The activity has been really good.”