Solid market fundamentals have been difficult to find, with complexities in today’s markets including high insurance premiums, inflated costs and pressures on rents.
As with similar cycles in the past, multifamily markets across the Midwest have shown their strength with muted supply, recession-resistant employment diversification and, in a few instances, solid population growth. And among these markets, Des Moines has proven to be exceptionally reliable.
Once considered a small but solid capital city, Des Moines has continued to grow over the past two decades — and so has the city’s apartment market.
Crossroads, Confluence Drive Population Growth
Des Moines is situated favorably at the intersection of two of the country’s largest interstate systems, I-80 and I-35, making it an ideal city for access and growth. All these interstates — including I-235, which runs through the heart of Des Moines — have recently witnessed or are currently under major construction due to the city’s continued expansion.
Des Moines continues to be the fastest growing major metropolitan area year-over-year in the Midwest and is now approaching a total population of 800,000, according to U.S. Census data. The population in Des Moines grew 18.6 percent between 2010 and 2021.
Additionally, various Des Moines suburbs have seen growth in new and expanding schools, infrastructure investments and employment. Waukee and Ankeny have been ranked as two of the fastest growing small cities in both the Midwest and nationally. Ankeny is now the sixth largest city in the state of Iowa.
Downtown Des Moines, which is situated at the confluence of the Des Moines and Racoon rivers, has also seen strong population growth, resulting in a more dynamic metro core than ever before. The city’s downtown was home to more than 8,000 residents as of the 2020 census, and it will continue to grow as housing construction continues throughout Des Moines.
An example is the city’s recent attention to its two major rivers with the support of the Iowa Confluence Water Trails (ICON), an organization that promotes water activities throughout Des Moines. ICON has raised over $100 million to date. This, in tandem with the metro’s 600 miles of connected bike trails, has helped to drive population growth in downtown neighborhoods.
Insurance, Finance Industries Fortify Economy
oines has maintained a low unemployment rate through good times and bad. The unemployment rate in the city was a tight 3.1 percent as of October 2024, compared to a national unemployment rate of 4.1 percent.
Furthermore, Des Moines’ unemployment rate amid the COVID-19 pandemic and during the Great Recession was consistently among the 25 lowest in the country.
Surprisingly to many, the city is a hub for finance and insurance. Des Moines has the highest concentration of insurance employment in the nation, with nearly 80 insurance companies headquartered in the metro.
Major financial groups and insurance providers that call Des Moines home include the likes of Principal Financial Group, EMC Insurance, Holmes Murphy, John Deere Financial, American Equity, Wellmark Blue Cross Blue Shield of Iowa and Wells Fargo, who all either have their headquarters or a major employment presence in the metro.
But Des Moines’ greatest strength is in its overall diversification of employment. In addition to insurance and finance firms, the metro boasts robust government, medical, agricultural and logistics sectors. This diversification has continued to springboard the city’s population growth and helps to cushion the metro against recession.
Other major employers in Des Moines include the MercyOne and Unity Point hospital systems, Hy-Vee Grocery, Corteva Agriscience, Athene and Casey’s General Stores. Reflecting its capital city status, Des Moines also employs more than 40,000 people through local, regional and state government positions.
Expansion is Happening Everywhere
Des Moines has quietly grown into becoming a minor league sports city. The city is home to baseball, basketball and hockey teams the Iowa Cubs, Iowa Wolves, Iowa Wild and soon to be the United Soccer League (USL). The USL expansion is inching closer to realization with the proposed construction of a new $95 million stadium in downtown Des Moines.
Additionally, the Des Moines International Airport is currently undergoing a major expansion. The $445 million first phase of the project is slated for completion within the next two years and will be followed by additional phases.
There are two neighborhoods in downtown Des Moines that have seen ongoing, substantial growth and development, which will make the submarket more dynamic as more residential and commercial buildings are constructed.
The East Village and the Market District are two neighborhoods adjacent to one another, east of the Des Moines River and in the shadow of the Capitol building.
The Historic East Village is a neighborhood that has seen dramatic growth over the past decade, with a mix of residential, boutique shops and restaurants. The area also is home to several government and privately owned offices. It is one of the original commerce areas of Des Moines.
To its south is the new Market District, which encompasses approximately 40 acres, with the ability to expand up to 260 acres into a former industrial area. The $750 million project will include housing, shopping, dining, parks and entertainment space.
Although the Market District development is in its infancy, a key $15 million, nine-acre park is set to open in 2025 along the Des Moines River. A significant amount of infrastructure for the park has commenced or been completed.
The second notable development in downtown Des Moines is the Gray’s Station/Landing district, just south of the urban core. This mixed-use development comprises more than 100 acres adjacent to the proposed USL soccer stadium. The project will feature apartments, for-sale homes, retail and hotel space.
Several residential and commercial projects have already been completed, and others are in the works. The neighborhood also benefits from being at the intersection of several biking trails as well as Gray’s Lake, which has recently been connected by a pedestrian bridge.
Modest Deliveries Garner Strong Occupancy
Once a fairly sleepy apartment market, Des Moines has experienced a period of strong construction over the past decade. Following robust deliveries from 2017 to 2020 and in the first half of 2023, construction completions have slowed below historical levels.
Similar to other markets nationwide, developers have had to contend with higher construction and financing costs in recent months. According to CoStar Group, there are 1,100 units under construction in metro Des Moines, well under the 3,700 units that were under construction in the first quarter of 2023 and an average of 2,600 units that have been under construction in each quarter over the past decade.
The bulk of current supply is located in the downtown submarkets of East Village and Gray’s Landing/Station, as well as in top suburban locations such as Waukee, Altoona and Ankeny.
With this pause in supply, as well as population growth in the metro, demand has been strong for new apartments as well as units in existing product. Stabilized occupancy in Des Moines has historically held steady in the 93 to 95 percent range, and CoStar is projecting higher occupancies in the next three years, closer to the 95 percent level.
Rental rates in the metro continue to be steady and, relative to other parts of the nation, positive. Year-over-year rent growth has been in the 1.8 to 2.1 percent range, depending on data sources. CoStar is projecting effective rent growth in the 2 to 3 percent range over the next three years.
A Slow Year for Transactions
Des Moines, like most metros across the country, has recorded a contraction in overall transactions this past year. Amid challenging capital markets, Des Moines has completed only 47 multifamily transactions over the past year, compared with an average of 74 over the past five years, according to CoStar.
Transaction volume from October 2023 to October 2024 totaled $252 million, and investors favored older product with value-add potential.
The largest deal in 2024 was Artisan Capital Group’s $50 million purchase of Cityville on 9th in downtown Des Moines. Cityville is a 312-unit community built between 2015 and 2018 with value-add potential. The property includes a portion of vacant ground floor retail space. The retail component is slated to be adapted into additional apartment units, with construction beginning in early 2025.
For the suburbs, Canyon View Capital’s purchase of Pointe West Apartments in West Des Moines was a significant transaction in 2024. CAPREIT sold the 223-unit community for $32.8 million. The property was built in 1989 and is positioned for value-add.
Sean Fogarty is a partner at ARTISAN Capital Group (ACG), a real estate investment firm based in Chicago with a regional office in Des Moines. He can be reached at [email protected].