Report: QC’s commercial real estate ‘strong’ despite challenges

The Quad Cities business community got a snapshot look at the challenges, the bright spots and future predictions of the local real estate market during a presentation Tuesday morning, May 16, at the Waterfront Convention Center in Bettendorf. More than 340 people attended the 2023 Commercial Real Estate Market Report Event presented by the NAI […]

The Quad Cities business community got a snapshot look at the challenges, the bright spots and future predictions of the local real estate market during a presentation Tuesday morning, May 16, at the Waterfront Convention Center in Bettendorf. More than 340 people attended the 2023 Commercial Real Estate Market Report Event presented by the NAI Ruhl Commercial Company. Much of the event centered on the health of the local real estate market as well as some “strong opinions” by economist KC Conway on the national debt and banking crisis.

On the local front, John Ruhl, president of the Quad Cities-based NAI Ruhl Commercial Co., gave an overview on commercial real estate, retail, office, industrial, farm and investments sectors. Mr. Ruhl’s overall message was that the Quad Cities market continues to face challenges in these areas, but the region is strong and active. “Despite substantial national influencing factors, including concerning inflationary numbers, historical click-up in interest rates, geo-political concerns and a dichotomy change in labor trends and worker practices, commercial real estate continues to demonstrate strong sales and leasing activity,” Mr. Ruhl wrote in a market report presented to the audience. During his presentation, he added that the region has many “bright spots” such as more medical offices being set up in the area, a number of new car washes doing business here and outside investors seeing the Quad Cities as a good place in which to invest.

“We’ve seen a great amount of growth thanks to out-of-town investors,” Mr Ruhl said. Some of the key areas discussed Tuesday included:

• Office space: Office occupiers are slowly becoming active again. But there are still concerns of a recession, another pandemic and many workers continuing their work-from-home model, according to the presentation. “The Quad Cities region has fared very well compared to many major cities, most of which are experiencing substantial vacancies,” according to the Ruhl Commercial real estate report presented to the audience.
• Retail: The retail market is active, but cautious. Deals have been taking longer to complete due to careful negotiations, as well as construction and financing challenges, the report showed. During his presentation, Mr. Ruhl pointed out that many car washes have been setting up shop in the area. He said the “secret sauce” to businesses seems to be car wash membership deals they have set up with their customers. Some of the notable retail projects in the Quad Cities include: Malibu Jacks at Duck Creek Plaza, Bettendorf, (92,000 square feet of space); Fareway Grocery, now renovating 18,000 square feet of space at 1301 Eagle Ridge Road, LeClaire; Aldi, 3221 Devils Glen Road, Bettendorf; Freddy’s Steakburgers, Birchwood South, Davenport, (a 3,500-square-foot restaurant new construction); Mister Car Wash and Club Car Wash, both in Davenport.
• Industrial: This type of space is in high demand locally. In fact, industrial space demand has exceeded supply for the first time in 20 years in the Quad Cities, according to the report. 

“Due to this low supply and high demand dynamic in our region, we have seen substantial price increases both in sales and leasing of industrial buildings. Our review of recent transactions suggests that pricing for sales and leases have both increased 15 to 20%,” according to the report. Some of the region’s notable developments include: Amazon Fulfillment Center with 2.9 million square feet in Davenport; Russell Industrial Park developments of 900,000 square feet, 301,000 square feet and 251,000 square feet; a MidAmerican Energy facility at 188,000 square feet; and Iowa American Water Co. with a 45,000-square-foot facility in Davenport under construction. 

• Investments:  The investment market continues to be strong. There remains more demand and available capital than there is existing quality investment product, according to the report. Some of the notable investment sales transactions in the QC include: industrial property at 5000 Tremont Ave., Davenport, for $8.3 million;  industrial property at 34-1 Fifth Ave., East Moline, for $5.9 million; and industrial property at 5101 Tremont Ave., Davenport, for $5.4 million.

In addition to commercial real estate, Chris Beason, president of Ruhl & Ruhl Realtors, gave a brief report on the state of residential real estate in the Quad Cities. He called the local market as being a traditional “slow and steady” model, but added: “We’re still going to be fast and furious” in home prices because of the low housing inventory. There will be no softening of the prices in the near future, he said. Mr. Beason presented these market statistics on the percentage change in home prices:

• Quad Cities: 7.72% increase in one year; 30.21% increase in five years.
• Cedar Rapids: 5.29% in one year; 30.92% in five years.
• Des Moines/West Des Moines: 12% in one year; 40.34% in five years.
• Iowa City: 10.61% in one year; 32.66% in five years.
• Waterloo/Cedar Falls: 10.25% in one year; 28.55% in five years
• Nation: 8.41% in one year; 58.44% in five years.

Much of Tuesday’s meeting was devoted to the keynote presentation made by Mr. Conway, who is an economist, co-founder and principal of Red Shoe Economics, which describes itself as a company that provides observation, analysis and interpretation of the ever-changing economic impact of commercial real estate. Mr. Conway gave an often gloomy and pessimistic view of the things to come in the U.S. economy because of the national debt and banking crisis. He said that in his “strong opinion,”  much of the bad news has been caused by what he called the “Three Stooges” of the economy – the Federal Reserve, Congress and the president. “These idiots are taking us over the cliff. … It’s sucking the life out of our economy,” Mr. Conway told the crowd. He reserved most of his harsh statements for the Fed, calling it the “worst, most incompetent Federal Reserve we’ve ever had.” Mr. Conway, who worked for the Federal Reserve for five years, said the Fed deserves those remarks because of its poor, weak response to the recent failure of Silicon Valley Bank, and its insistence that the banking crisis is over.  “That’s the biggest barbeque sauce I’ve ever heard,” he said, adding that he uses the words “barbecue sauce” as a polite term for B.S. The reality, Mr. Conway added, is this:

• The Federal Reserve recently revealed that 722 banks reported unrealized losses exceeding 50% of capital in the third quarter of 2022. Thirty of those banks had a “negative tangible equity.”
• The annual interest on the national debt is $570 billion.
• The U.S. raised the debt ceiling in one form or another at least 90 times in the 20th century.
• Even though many people now think inflation is now under control, it is not, he said. Mr. Conway accused the Fed of using “gimmicks” to make it appear inflation is improving. Amid inflation, one in five households now is buying groceries from a Dollar Store, he said.
• Consumer and small business confidence is down.

“These freaking idiots won’t come out of their caves or castles and talk to us (about the economy),” Mr. Conway said, adding to his strong criticism of the Federal Reserve. The economist offered this gloomy prediction about the future: “As for the debt crisis, we don’t know what's really going to happen, but it’s really going to be messy.” In the midst of the bad economic news, he had many positive comments about Iowa and its community banks. He said Iowa has not had a bank failure since 2011. He added that the state is one of the best places to run a business. “Your economy is good. Your banks are solid. You are not on the other side of the river (in Illinois),” he said.