Nearly 40% fewer building permits were issued for new commercial projects in the Greater Des Moines area in 2023, a direction construction observers expect to be reversed in 2024.

Overall, 156 building permits were issued for new commercial projects in 2023 in Polk County and 13 Des Moines-area communities, a Business Record review shows. In 2022, 251 commercial permits were issued for new projects; in 2021, 253 were issued.

Rising interest rates resulted in the slowdown of both fixed- and floating-rate commercial real estate lending in 2023. In December, though, Federal Reserve Chair Jerome Powell said the tightening of monetary policy was over and that interest rates could be cut in 2024. And while the Federal Reserve didn’t make changes to interest rates in its January meeting, December’s optimistic comments by Powell eased some developers’ concerns, said Brian Clark, founder and president of Sonar Development Partners, a real estate advisory firm.

“A decline in rates will help budgets fall in line,” Clark said. “People I talk with are saying that ’24 will be a better year than 2023.”

Still, developers remain cautious, Erin Knupp, director of business development for Boyd Jones, wrote in an email. “I don’t think the hike in rates has been fully felt yet in Iowa,” Knupp wrote. “There’s still plenty of capital out there. It’s just going to be a matter of due diligence to piece together equity, grants and incentives.”

Creighton Cox, managing owner of C2 Consultants Inc., said that in recent weeks, he’s noticed an increase in the purchase of undeveloped land in Polk, Dallas, Warren and Madison counties. He said he’s also noticed an increase in visits to the area by site selectors and more serious discussions between land owners and potential buyers.

“We’re seeing some of those larger transactions actually close,” Cox said. “The architects are all comfortably busy.”

Technology giant Microsoft Corp. is among those that have acquired undeveloped land. The company bought over 375 acres of farmland in Van Meter in January and over 100 acres in West Des Moines in late December. Microsoft is expected to start construction in the first half of 2024 of two data centers in its Ginger East campus at 1475 S.E. Maffitt Lake Road in West Des Moines, city council members learned this week. The city is reviewing two other data center buildings.

In 2023, West Des Moines issued three building permits for data centers at Microsoft’s Ginger East, Ginger West and Osmium campuses, records show. The value of the three permits totaled $1,043,300,000, or 57% of the more than $1.8 billion in valuation of all of 2023’s new commercial building permits.

“Data center development will continue to be prevalent in 2024,” Cox said.

The health care sector is also expected to continue to see additional growth, Clark said. UnityPoint and the Iowa Clinic are opening new medical clinics and surgery centers in Waukee in 2024, and Iowa Orthopedics is building a foot surgery center and medical campus in Grimes. Also, Dr. John Tentinger, a local radiologist, plans to develop a regional medical campus in Urbandale. The campus will provide preventive and diagnostic services, as well as treatment.

“Growth in medical and health care campuses is one of the trends I think will continue occurring,” Clark said. “People are leaving big hospitals to start their own practices. They are going to where their patients and clients are. We are going to see more expansions like what [is occurring in Waukee] occur in Ankeny and other surrounding suburbs.”

Knupp also thinks that more repurposing of office buildings will occur in 2024.

“There will also be a strong focus on repurposing some of the larger office spaces that are now vacant or partially vacant,” she wrote. “Finding creative ways to fund and incentivize these projects to happen will be key to their success.”

How much new commercial development occurs in 2024 will depend on what happens with interest rates, Clark said.

“Some of my clients are planning to break ground on projects in 2025,” Clark said. Bankers are speculating that interest rates will decline slightly by mid-year, he said. “That is what people have been waiting to hear. Now they are starting to say that it’s OK to pull the trigger on some more projects.”

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To find out more, check out the Business Record’s database that includes information about building permits issued in 2023 for projects valued at over $250,000.

To view the interactive map, click here.

To view the spreadsheet, click here.