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Commercial Department: Spotlight: Iowa: January 2016

 

Spotlight: Iowa

Iowa’s economy is powered by farming, finance and manufacturing.

Best known for corn and caucuses, Iowa has quietly developed thriving financial-services and advanced-manufacturing sectors that have broadened the state’s economy.

Lead by Des Moines-based Principal Financial Group, insurance and financial-services companies account for 13.5 percent of the state’s $170 billion gross domestic product (GDP), the fifth-highest percentage in the U.S., according to the state’s Department of Economic Development. Iowa manufacturers make advanced precision equipment, environmental-control systems and electronics, among many other products, and employ more than 200,000 workers, more than any other industry.

But Iowa farms remain important to the state and to consumers around the world. Iowa produces more corn, soybeans, pork and eggs than any other state, and is second in red-meat production. Overall, Iowa-grown commodities account for about 7 percent of the U.S. food supply, and the state’s agricultural-export earnings ranked second nationally in 2014, at $11.3 billion.

But farming has been a struggle recently. Corn prices dropped 40 percent from their 2012 highs, and soybean prices were off 50 percent as of the end of third-quarter 2015. In addition, the strong dollar makes Iowa’s agricultural products more expensive in overseas markets.

Those problems in the field can be felt in the cities as well. A poll this summer sponsored by the Iowa Soybean Association found that 60 percent of farmers in the state are planning to cut back on farm-equipment purchases. That’s worrisome news for Deere & Co.. and Caterpillar Inc., both of which manufacture farm equipment in the state and are headquartered just across the Mississippi River in Illinois.

Given the outsized attention paid to next month’s Iowa caucuses, commercial real estate investors might wonder whether the candidates, staffers and reporters who trek to the state every four years might be a boon to the local hospitality industry. The answer is no, according to an Iowa State University study, which says presidential campaign spending in the state benefits out-of-state political consultants much more than it does Iowa businesses.

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Des Moines office market

Greater Des Moines Office-Space Vacancy Rates. Source: CBRE/Hubbell Commercial

After three years of very little new office development, increased employment in downtown Des Moines has helped spur the construction of new Class A office space. Overall, vacancy rates have been slowly declining for all classes of office property, in what CBRE/Hubbell Commercial’s 2015 market survey describes as a “flat, yet stable market.”

The biggest shake-up in the market is coming from large tenants moving out of leased space and into owner-occupied buildings. Wells Fargo, Kum & Go and DuPont Pioneer have built or announced plans to develop new owner-occupied buildings that will replace previously leased space. Kum & Go, a convenience store chain based in West Des Moines, is moving downtown, and will occupy a 120,000-square-foot headquarters scheduled to be completed in 2017.

Meredith Corp., a media company headquartered in Des Moines, agreed in September to a $2.4 billion takeover by Virginia-based Media General. Shareholder approval of the deal is far from certain, but city officials say they have been assured that Meredith will keep its offices and 900 employees in the city regardless of the outcome.

Focus: Biofuels

Corn is king in Iowa, but only a little more than half of the state’s crop is consumed as food. The rest is used to create ethanol, the additive that’s included in gasoline. More than 40 ethanol plants operate in Iowa, and the state accounts for about a quarter of the country’s ethanol production. Iowa also ranks first in production of biodiesel — a diesel-engine fuel that’s created from Iowa soybeans, among other agricultural products.

In 2014, an industry-sponsored study concluded that biofuels generate 60,000 jobs in the state and account for 4 percent of Iowa’s GDP. Although there are critics who contend that the environmental advantages of biofuels are overstated, the industry has potent regulatory support, especially Environmental Protection Agency rules that require automobile fuel to contain a mix of at least 10 percent corn-based ethanol.

Unemployment

Unemployment Rates. Source: U.S. Department of Labor

Iowa’s unemployment rate was the sixth lowest in the nation this past September, at 3.6 percent. Joblessness in the state has mirrored national trends over the past decade, rising sharply during the recession and steadily recovering over the past five years. Through third-quarter 2015, the state’s year-over-year employment outlook has improved, with gains in total nonfarm employment, especially construction. But manufacturing has been problematic. About 15 percent of the jobs in the sector evaporated during the recession, and although there’s been some recovery, job growth in the sector has been stagnant for two years and total manufacturing employment is still below its 2006 high.

Sources: CBRE Hubble Commercial, Cedar Rapids Metro Economic Alliance, Federal Reserve Bank of St. Louis, Forbes, Iowa Area Development Group, Iowa Corn Growers Association, Iowa Department of Economic Development, Iowa Renewable Fuels Association, Iowa Soybean Association, Iowa State University, Johnston Economic Development Corp., NAI Optimum/Des Moines, Sioux City Journal, Sioux City Economic Development Department, U.S. Bureau of Labor Statistics, U.S. Department of Agriculture Economic Research Service, World Bank


 

3 Communities to Watch

Johnston

Iowa City, Iowa

Part of the Des Moines metropolitan area, Johnston’s population doubled between 2000 and 2010, to 17,000, as it grew into a thriving suburb and a small city of its own. Iowa Public Television and the Iowa National Guard have their headquarters in the city, and DuPont Pioneer is planning a 4,900-square-foot expansion of its Johnston agribusiness facility, a continuation of a larger $28 million expansion effort.

Cedar Rapids

The small city of 125,000 is home to some big names in food processing, electronics and retailing that give rise to its diversified economy and earned the city a spot on Forbes list of best places for business and careers. Cedar Rapids has long billed itself as America’s cereal capital, and Quaker Oats, General Mills and ConAgra plants make food processing an important driver of the local economy. But the city’s largest employer is aviation giant Rockwell Collins, and retailer Nordstrom operates its Midwest distribution center in Cedar Rapids.

Sioux City

Located along the Missouri River at the borders of Iowa, Nebraska and South Dakota, Sioux City attracts residents of the three states to its downtown, which includes a convention center, multifamily developments, history museums and an historic district. The city’s retail prospects were bolstered this past summer by a Dallas developer’s announcement of plans to begin construction this year on a $30 million 387,000-square-foot shopping complex.



 

What the locals say

“We’re seeing new product come on the market — retail, office and especially industrial. There’s probably 900,000 square feet of new industrial space that’s either been completed, is in the process of being built, or has been announced [in Des Moines].”

N. Kurt Mumm, President, NAI Optimum, Des Moines
N. Kurt Mumm,
President,
NAI Optimum, Des Moines




 

Bill Lewis was editor of Scotsman Guide Commercial Edition. For questions about this article, call (800) 297-6061 or e-mail articles@scotsmanguide.com.

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