By Scott Olson, Skogman Commercial
As the city of Cedar Rapids, Iowa celebrates its 175th year in 2024, the growth momentum and success continues despite a derecho, pandemic and high interest rates that have impacted the state and our nation. The city continues to reach new heights, becoming one of the few communities in the nation to have all of its major city service departments obtaining accreditations from leading industry-specific agencies. Currently, the departments certified include:
• Parks and Recreation Department
• Fire Department
• Police Department
• Public Works
• Public Library
• Building Service Department Code
• Enforcement Division
Public Works passed accreditation with a 100 percent score with 11 of its policies selected to be used as models for other cities. The Code Enforcement Division had the highest score to date and is only the ninth city to have this certification.
But, just as impressive is the city’s most recent national rankings:
• No. 23 city with the lowest cost of living in America (niche.com, 2024)
• No. 41 best place to live in America (livabililty, 2024)
• No. 45 happiest city in America (wallethub, 2024)
• No. 13 best city to buy a house in America (niche.com, 2024)
• No. 7 best mid-sized city to make a living (moneygeek.com, 2023)
• A top 100 place to retire in America (wallethub, 2023)
• Just announced by the U.S. Small Business administration (SBA) that the city of Cedar Rapids is the 2024 SBA Iowa Small Business Community of the Year
As a member of the Cedar Rapids City Council, I’m also proud that our city is:
• No. 23 best-run city in the U.S. (wallethub, 2023) (Cedar Rapids has ranked in the top 30 since 2017.)
• No. 23 safest city in America (wallethub, 2023)
Besides maintaining these national rankings over the years, the city is working hard on two of the most important issues facing our nation — affordable housing and homelessness.
The city recently completed The Heights, a 25-unit conversion of a vacant office building that is fully ADA with rents at 60 percent of the area median income with operations/services provided by the Hawkeye Area Community Action Program (HACAP). The city fully funded the cost by leveraging $4.5 million in federal funds. In addition, $1.2 million was granted to seven agencies/developers to create 49 more affordable units.
As a follow-up to a successful recovery following the historic 2008 flood and a housing program created called Rebuilding Ownership Opportunities Together (ROOTs), the city is teaming with state and federal agencies to develop 76 new affordable houses throughout the city, which includes up to $35,000 down payment assistance.
To address the homelessness issue, the city partnered with the National Alliance to End Homelessness in 2023, which has led to the city and Linn County to jointly hire a homelessness system manager position for three years to facilitate data collection, research best practices and engage the community to create holistic solutions to address homelessness challenges.
The city is continuing to address the impacts of the historic 2008 flood and the 2020 derecho with two significant efforts. The flood protection system, now estimated to cost $1.2 billion, is 41 percent complete on the east side of the Cedar River and 21 percent complete on the west side. To date, $286.4 million has been expended with 12 projects totaling $57 million currently under construction.
In April 2024, the city was awarded a $56 million FWHA project grant from the Federal Highway Administration to replace the existing 8th Avenue river bridge to mitigate flood risk and create a route that allows continuity of operation for residents and major food manufacturers during a major flood event. With the city providing $20 million, the new $76 million bridge will be a single tower cable stay bridge, which will improve river flow as well.
The award-winning Releaf Cedar Rapids $37 million, 10-year program to replace the 697,000 trees lost in the derecho received a $6 million grant from the U.S. Department of Agriculture Forest Service. The funding will help restore, enhance and expand the tree canopy in disadvantaged neighborhoods in Cedar Rapids. Over 8,000 trees have been planted to date in public right of ways and parks through this program, plus many residents and businesses have added thousands of trees to this effort.
The strength of construction of residential and commercial projects continues to remain strong in fiscal year 2024 with $417.2 million of value with over 8,572 permits issued. Thus, total permit value for the last four fiscal years now totals a record $2.2 billion. This was all while the building/housing code accreditation team met or exceeded 50 standards earning a tie for the highest score in securing its four-star accreditation.
Another important street program that is now in its 10th year is the Paving for Progress effort that utilizes a one cent sales tax dedicated to street maintenance. To date, over 320 projects totaling $210 million of expenditures have been completed, which has improved over 107 streets, 71 percent of which are in residential areas.
This year’s effort includes 50 projects totaling $26.8 million. What is so unique about this program is that the city has paid cash for all street projects in the last 10 years versus using bonds, plus 25 percent of that sales tax funding comes from people outside of city limits. Citizens also recently voted to renew the 1 percent sales tax for another 10 years.
The city’s image as having soaring growth and momentum is highlighted by a series of three recent projects. A data center by Google was announced in Southwest Cedar Rapids in the Big Cedar Industrial Center. This $576 million project is the largest private economic development project in city history based on the level of investment. The site has been purchased by the developer and site grading has started.
The first phase will create 31 new full-time, high-quality jobs. The site allows several more centers to be constructed over the next decade. The company will be paying the city $400,000 per year per data center through a community betterment agreement to assist with expenditures of public improvements.
As a part of the $20 million ConnectCR project conceived by a local nonprofit organization, the Cedar Lake revitalization north of downtown will be tied to the construction of a $12 million pedestrian/bike bridge crossing the Cedar River at the site of a former railroad bridge destroyed in the 2008 flood.
This Alliant Energy Lightline will create separate lanes for pedestrians and bicyclists with plazas on each end displaying historic exhibits plus a connection to Mount Trashmore recreational amenities. This project will enhance the Cedar Valley Nature Trail and Great American Rail-Trail, which are two national trails stretching coast to coast that pass through Cedar Rapids. This project is scheduled for completion in late 2025.
The final project is the initial phase of the $81.5 million First on First development downtown. Three parts of the project are complete — Big Grove Brewery, the four-story Pickleball Palace and a five-story commercial/retail complex with 65 apartment units. The next three parts of the project are under construction or will be this fall. That includes 51 more apartments, a 100-room AC Hotel by Marriott and a 461-stall city parking garage. Phase II on the adjacent block is scheduled to start in 2025.
On the other side of I-380, a group of investors are planning to file with the State of Iowa Gaming Commission for a license to build a $250 million casino. If a license is granted in February 2025, this would create an area adjacent to the First on First development of unparalleled entertainment area for a city of our size.
Now, let’s talk about real estate sectors.
Multifamily remains active
The explosion of multifamily projects of all sizes and prices continues in 2024. From the 180-plus units at the Loftus site to a four-unit complex in Northwest Cedar Rapids, over 10 projects are starting construction with many others in various stages of state tax credit review and/or financing. Even with the cost of construction and interest rates at a high level, the rents proposed are still some of the most affordable in the country.
Also exciting is the variety of projects from townhomes to historic conversions to multi-story new buildings with numerous amenities. In the New Bohemia developments, the mix of tenants is almost half empty nesters versus young professionals. Vacancy rates remain very low, but a trend of higher vacancies is starting to occur in older properties as more new options are available.
As I have highlighted previously in this article, affordable housing is still a top priority for the city but difficult to create without substantial government subsides. Hopefully, the higher availability of units in older complexes will fill some of that gap.
Office-hybrid is winning
Three years after the start of the pandemic, the office workforce is now permanently accepting the hybrid work environment as a reality into the future. Even with less job opportunities for workers to jump to for more flexibility/money, remote work options are now a major recruiting tool for many Cedar Rapids companies.
As companies adopt this strategy, space needs are being dramatically reduced through subleasing of corporate excess space or reducing space utilized when the lease is renewed. We are fortunate in Cedar Rapids to see many older buildings in the core area being converted to housing. This trend will continue, with three large downtown buildings prime candidates for this conversion effort.
Office vacancy rates in both the central business district and suburban areas is closing in on 20 percent due to the hybrid trends. There are office users that are expanding but not at a pace or scale to make a dent in this rate.
With over 300 listings of all sizes on the active market, per-square-foot rates range from $6 to $23 in our market. However, the average rate is a very competitive $10 to $11 per square foot. Having an estimated one-third less workers in the core, retail/restaurant businesses designed to serve the office lunch crowd are struggling. Even with the positive trend of more people living downtown, it creates different types of business opportunities.
Industrial still trending up
The MLS in our metro area shows over 120 active listings for lease or sale. Our vacancy rate (around 2 percent) is still very low, as many of the listings are for speculative buildings not yet built or still under construction. Most older buildings that used to lease for $3.50 to $5 per square foot have been sold to former tenants who took advantage of the low interest rates during the pandemic. Now, the newly constructed flex and warehouse buildings list for $5.95 to over $8 per square foot, a rate range never seen before in Cedar Rapids but still competitive nationally.
Construction activity remains focused in Southwest Cedar Rapids around I-380 and the Eastern Iowa Airport. As the 400,000-square-foot SubZero manufacturing facility and 150,000-square-foot Altorfer Equipment Co. building are completed or nearing completion, six new facilities from 20,000 to over 400,000 square feet are under construction in this area.
In addition, the city’s economic development team is competing for several major companies such as the recently announced Google data center to continue this positive growth in the city. The Iowa Department of Transportation just announced the full funding to allow I-380 to expand from four to six lanes from Coralville north to Highway 30 in Cedar Rapids. This project also includes expanding the Wright Brothers Boulevard interchange that is the main access to the airport from the interstate as well as to the industrial development.
Retail is stable
The annual city participation at the ICSC World Retail Conference in Las Vegas in May highlighted the expansion of our city economic team’s retail analysis data in conjunction with consultant Retail Coach. This approach is paying dividends for our city and its developers to recruit new retailers. The Lindale Mall/former Sears site, The Fountains and Westdale Mall are all making major strides in attracting new national retailers.
Currently, there are 130 retail space options for lease ranging from $7.95 to $26 per square foot located in all four quadrants of the city. Plus, many of our new housing complexes in our core areas have a retail space component on the first level. However, the majority of those spaces are utilized by personal service or food establishments versus the traditional retail store.
Vacancy rates are continuing to increase slightly due to the difficulty for small businesses to obtain financing plus cost of build-out. Even at a 10 percent vacancy rate, it is still a healthy market. New entertainment venues like the Pickle Palace in downtown Cedar Rapids have brought new life to the retail sector.
Final summary
In today’s world, for a city to be successful, it must address a multitude of issues — affordability, job opportunities, amenities, safety and homelessness — plus have a forward-thinking mayor, city council and city staff. A recent survey of existing businesses showed that 75 percent of business leaders stated that the City of Cedar Rapids had a very good to excellent business climate.
The city’s very strong financial position and goal of expanding industries in target areas of food science/processing, life sciences, logistics, finance/insurance and entrepreneurial businesses is showing results as evidenced by its numerous national rankings. Please consider taking advantage of the many opportunities in the “City of Five Seasons” with the fifth season being time to enjoy the other four seasons.
Scott Olson, AIA, RCFM, SIOR, is a broker associate and architect, emeritus at Skogman Commercial. He has been a member of Cedar Rapids City Council since 2012. This article originally appeared in the August 2024 issue of Heartland Real Estate Business magazine.