GUEST COMMENTARY

Retail trends in 2023

by Riley Hogan, CBRE senior vice president and Ajdin Nadarevic, CBRE senior vice president

 Despite the challenges posed by rising construction costs and a labor shortage, retailers and developers are finding innovative solutions to remain competitive. Des Moines has experienced positive absorption for nine consecutive quarters and a full-year total of 81 million square feet. This is a trend that is mirrored nationally, with the nationwide retail availability rate dropping below 5%, raising the average asking rent by 2.5%. The market tightness in the western suburbs is expected to remain high, with a strong demand for great locations with national retailers and good street presence.

One major trend we are seeing on both a national and local level is the rise of experiential retail. After recently welcoming Spare Time Entertainment and Big Grove Brewery, Des Moines will also soon be home to several exciting new-to-market concepts, including Dave & Buster's, Live Nation, the Grand Experience waterpark hotel, and several golf simulation concepts such as Topgolf, Suite Shots and Boomers. These developments are a reflection of the growing demand for unique and interactive shopping experiences geared toward experience and family entertainment. We’d be remiss not to mention the car wash growth and new to marketplace concepts under construction and under contract for new sites. As Des Moines’ robust residential growth continues, so has the retailers’ appetite for convenient locations that are close to their customers for their commerce dollars.

Retailers and developers are feeling the pain of rising construction costs and are adjusting their plans accordingly. Some landlords have decided to maximize bay sizes. This is leading to deeper bay depths, up to 25-30% deeper than normal. Tenants are seeking out second-generation leasing opportunities and are buying existing businesses that have real estate plays in mind.

Des Moines has arrived as a marketplace that national retailers are targeting for expansion needs, when it was once overlooked. Big-box retail brands are looking at expansion again. For example, Target will anchor the new Waukee Towne Center. Costco recently completed construction of their new location at Spectrum 36 in Ankeny. These two anchors will attract increasing competition in the market and will create opportunities for maturing malls like Valley West Mall and Southridge Mall. It will also spur new lifestyle development in those immediate areas, leveraging their strong real estate locations, and it will allow repositioning of the underlying real estate. 

Office vacancy rates are approaching 20% and an even higher availability rate when including the shadow office vacancy of larger corporately owned and leased office space around the metro, which is affecting restaurant and retail momentum in the downtown area. Des Moines is also facing difficulties with light workweek traffic that has historically supported downtown restaurants and retail. We expect there to be ongoing opportunities with retail in the central business district. This has created opportunities for users like the city of Des Moines to purchase existing buildings and repurpose them for their use. MidAmerican Energy is another such office group that was able to take advantage of well-positioned existing inventory to purchase for less than new construction costs. For retail to survive in the central business district, we need to reverse the trend of employees leaving the downtown market.

One of the biggest challenges in the retail market right now is the shortage of quality employees. Access to affordable housing near new retail developments is a concern for retailers and restaurants who are struggling to recruit employees from across the metro. This has led to restaurants and retailers cutting back their store hours and capacity. Improving access to affordable housing in these developments will help solve the labor crisis and make it easier for retailers to find quality employees.