Construction of speculative space in the Central Iowa industrial market slowed in the third quarter of 2024, allowing for greater absorption of new and existing space, quarterly reports from commercial real estate brokerage firms showed.

JLL and CBRE recently released their reports on industrial activity for the quarter that ended Sept. 30. Here are highlights from their reports.

JLL

• The nearly 860,000 square feet of industrial space under construction was the lowest since the second quarter of 2019. Two warehouses account for 91% of space under construction; Kemin Industries and JT Logistics will occupy those buildings.
• Out-of-state investors are continuing to eye the Des Moines market for investment groups, targeting fully leased modern bulk warehouses.
• About 4.9 million square feet of industrial space is in the planning stages.
• Demand persists but decision-making for acquisition is longer.
• Two significant sale transactions occurred in the quarter. Buzz Oates acquired a 157,500-square-foot warehouse at 6910 S.E. Four Mile Drive in Ankeny for $18.5 million. Hubbell Realty had developed the building and signed a lease with Amazon prior to the sale. In addition, I-80 Investors LLC purchased a 315,000-square-foot warehouse at 2220 20th Ave. N.W. in Altoona for $36.4 million. The Opus Group built this warehouse for the seller, Hawkeye Investments. The quarter had 11 sales, which had an average sale price of $6.2 million.

CBRE

• There was 230,000 square feet of absorption in the third quarter, bringing to 235,636 square feet of positive absorption year to date.
• Record amounts of speculative product were delivered to the market in the previous 24 months, putting upward pressure on overall vacancy rates. Much of the speculative space remains vacant and is located in the western and northeast suburbs.
• Leasing decreased in the third quarter. Leasing activity totaled just over 277,000 square feet, down about 118,000 square feet quarter over quarter.
• The largest lease in the quarter was Baker Group, which took 75,000 square feet in the Anderson Warehouse, 2770 21st St. N.W. in Altoona.

Both firms discussed the Federal Reserve’s decision to reduce interest rates by 0.50 percentage points in September with another 0.50 reduction possible by the end of the year.

“This easing of financial conditions combined with continued economic growth should support modest hiring and consumption that precedes tighter commercial space market fundamentals,”  the CBRE report read. “This backdrop will breath fresh wind into real estate market transactions markets and coincides with other signals that cap rates have peaked and may be starting to fall in some sectors.”

In its report, JLL said the rate reductions are “likely to boost investment and development in the industrial sector.”

“Historically, significant investment growth follows rate decreases by about nine to 15 months,” the report read. “Consequently, heightened activity is anticipated in [the fourth quarter of] 2024 and throughout 2025.”

Look for brokerage firms’ quarterly reports on the office sector in next week’s commercial real estate newsletter.