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Business Feature

Renting or owning?

2/5/2025

Property at Prairie Crossing is available for new businesses.

In Des Moines, small businesses are opening regularly. According to the DSM Small Business Report, provided by the Greater Des Moines Partnership, 12,286 jobs were created by new firms in 2022. More specifically, industries like finance and insurance, accommodations and food service, and health care and social services are increasing the opportunities for Des Moines residents. As exciting as this growth is, it comes with challenges for the owners and operators. One of those is finding the right building in the right location — then deciding whether renting or owning is the best option.

It is one of the many decisions small business owners must make when opening their doors to the public — and, arguably, the most important. A variety of factors come into play, including financing; building space, layout, features and location; and availability. Choices vary by type of business and are impacted by the current real estate market of the area. 

 

The benefits of renting and owning

The majority of small business owners prefer to rent a building rather than own, due to the flexibility it offers, lack of long-term commitment, and the lower initial investment. 

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Kara Kelso, one of the co-owners of The Slowdown Coffee Co. in Highland Park, had no idea what she and her husband were getting into when opening up their business. 

“Did I think I will be (running a coffee shop) in my life? No,” Kelso said. “But after the 2016 election, we started getting involved in the neighborhood association and meeting a bunch of people.” 

It was through forming those connections that they met their current landlord, who knew about their endeavors. He had a space available for the Kelsos when they were ready to start. With a lot to learn and do in opening their shop, renting made sense as the quickest way to get started and the least costly. Their coffee shop opened in 2020.

Angie Tessau is the senior vice president of brokerage services at Knapp Properties.

“We had no money and did not know what we were doing, but we went for it,” Kelso said. 

Angie Tessau, the senior vice president of brokerage services at Knapp Properties, notes the advantages renting provides for small businesses, mostly in costs. 

When looking to purchase a building, the upfront costs such as down payment, closing costs, and other fees are always required, Tessau shared. However, renting typically involves a security deposit and possible tenant costs if they are not covered by the landlord. 

“With higher interest rates and costs to construct new properties, many small business owners seem to prefer to lease versus own,” Tessau said. “Flexibility, timing and availability are additional reasons smaller businesses may prefer to lease rather than own.”

With that in mind, there are also benefits to owning your space, such as stable payments. Mortgage payments are typically predictable, while rent payments can escalate throughout a lease term. Owning your own property provides control to modify without approval from your landlord, tax benefits, and the avoidance of losing your location based on lease non-renew or renegotiation issues. 

Most people decide to own their own property to build equity. Kelso shares that, if The Slowdown ever decides to open another property, they would like to own the space. 

“One thing that’s exciting about Des Moines is there’s a lot of neighborhoods that are getting redeveloped,” Kelso said. “I think there will be more areas coming online.” 

However, as much as she would want to own a building, she remembers how difficult it is to meet all of the city code requirements. 

“The city code makes everything a little difficult,” Kelso said. “One of the big things being that you need a grease interceptor for a food business. Anything related to food, you need to put in a grease interceptor.” 

A grease interceptor stops the grease and waste from a restaurant’s food products from getting into the city’s sewer. Not only is it required by the city, but it can also be a big cost. 

Kelso adds that, luckily, their landlord helped pitch in for the cost of the grease interceptor to make opening costs easier on the new owners. 

“We’re so appreciative to him… He’s done a great job of upkeeping this building,” Kelso said. “It does help to have a good landlord who’s willing to make you successful in your business.” 

 

Finding the right space 

When looking at properties, it is vital to find the perfect space to accommodate your needs and provide your service or product to customers. 

Grant Wright, the first vice president in the advisory and transaction services branch of CBRE Realty in West Des Moines, said it is his job to find the perfect place for his clients. 

“We help [businesses] from the very start,” Wright said. “Typically, we begin with a market survey, learning about their needs, and showing them what’s available in the market.” 

The Slowdown Coffee Co. opened in rented space in Highland Park. Kara Kelso says the landlord was instrumental in helping get the business off the ground.

From there, Wright gives tours to his clients until they find what they are looking for. Next, CBRE helps secure the space by writing offers to lease and remains involved in the process until the end. 

“As a broker, we work in a lot of different areas, so we need to be connected,” Wright said. “If they need references for attorneys, contractors or architects… we are typically the middle person between setting them up with the appropriate individuals to help their business become a reality.” 

As much support as commercial real estate agents can give you, they can only do so much in terms of what properties are available. In terms of trends, interest rates are rising, and the cost to build anything these days is expensive. Even if there is a building that is perfect to house a small business, the owner is not always looking to sell it. 

“Sometimes, we have clients that want to find spaces to purchase, and it’s really tough to find,” Wright said. “We might have to wait months at a time to find those properties, so it can be scarce.”

Before Kelso became a local coffee shop owner, she worked in marketing for real estate. While working on being a full-time small business owner, she noticed many new business owners going through the same challenges she and her husband were experiencing. 

“We had neighbors who were moving, kind of going through the same things, and I didn’t have the tools to help them. So that’s when I decided to get my [commercial real estate] license so I could help other small business owners figure out the overwhelming process it is getting into a brick-and-mortar store,” Kelso said. 

 

Resources for new small businesses 

Through Kelso’s community efforts, she has been able to locate resources for other small businesses as a way to assist newcomers. 

One of these resources is a matching program called Best DSM. Best DSM can partner on commercial and residential projects. The Slowdown has benefitted from the program in the past as Best DSM helped contribute to their plumbing and electrical work. Although helpful, those who participate have to be located in certain areas of Des Moines in order to qualify. Kelso shares there are a couple of other programs that are similar, but there are not any “straight-up” grants for small businesses. 

Kelso continues by saying it is possible to get a loan from the Small Business Administration; however, some find the process rigorous and frustrating. 

“Getting funding as a small business owner is next to impossible. The SBA has a lot of great resources on their website, but it can be a lengthy process. They have to know about your assets and everything,” Kelso said. 

Commercial real estate is available at 4949 Westown Parkway.

Another program that has helped the Highland Park community is the Neighborhood Development Corporation. The NDC is a nonprofit organization that buys properties from the owner, redevelops the property, and then sells the building back to the owner. It has helped businesses with the overall costs and has been a factor in re-development in Des Moines. 

Finally, just last year, two economic development project managers were hired by the city of Des Moines. Kelso shares they are both great resources to help small business owners with beginning questions and resources within the city. They put out a newsletter called “The Small Business Minute” that highlights new small businesses and loan programs. 

“I would encourage anybody who has wanted to open a small business to talk to other people who are already doing that business,” Kelso said. “We have so many people who were doing coffee that we met with at the beginning that were able to mentor us or give us some great ideas. The city of Des Moines has a great small business community. We’re so supportive, and everybody collaborates and supports each other.” ♦

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