Recovery in industrial real estate still years away

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The industrial leasing market continues to suffer nationally and isn’t showing much sign of improvement here, either.

In a just-released report, Grubb & Ellis chief economist Bob Bach said developers nationwide completed 4.3 million square feet of new industrial space in the first quarter, the lowest rate in at least the past decade.

What’s more, there was only 13.1 million square feet of industrial space in the construction during the first quarter, or just 0.1 percent of all property under construction.

That’s the lowest percentage since the company began tracking the national industrial market in 1986, Bach said. In addition, vacancy rates continued to rise to 10.9 percent overall, and rents continue to fall 6.7 percent compared to a year ago.

Not a pretty picture. But is the Pikes Peak region’s industrial market faring any better?

“We’re pretty much in lockstep with the rest of the country,” said Grubb & Ellis Quantum Commercial local broker Rich Kelly.

With lease rates down, price per square foot down, occupancies down and foreclosures up, the market could take a full three to four years to recover, he said.

His advice to building owners who might want to unload an underperforming building is to hang on, if possible.

A few promising recent developments — Everest College’s 72,000-square-foot lease at Corporate Ridge, Auxsol’s 20,000-square-foot move to the Biblica campus and the renewal of several large leases along Garden of the Gods Road — were offset by half a dozen new foreclosures.

Among them, the Academy Point building on 7.4 acres at 1250 Academy Park Loop owned by Peridot Properties and the Airport Park building at Fountain and Murray boulevards, both on the city’s southeast side. And those are just two larger, visible properties.

“It’s a case of one step forward, two steps back, and we’re ending up with negative absorption,” Kelly said.

Another perspective on the apartment market

Veteran multifamily brokers see the local market in terms of cash flow and price per unit. University of Colorado Colorado Springs students have their take on things, too.

A May 3 story in the UCCS Scribe newspaper recapped the Colorado Division of Housing’s first-quarter rent and vacancy report, noting that affordable housing was tightening.

Reporter Averi Walker checked out RentJungle.com, an apartment research agency website that reports which neighborhoods are the cheapest. Its advice: Look to the southeast, northeast and east of Colorado Springs.

The website also reported that student-favored one-bedroom apartments were renting for $583 a month on average, up 2 percent in the past six months, and two-bedroom apartment rents for $757, a 3 percent rise.

“The increase in competition for affordable housing is especially poignant for UCCS students on a budget,” Walker wrote.

And some of their parents, too, I’m sure.

From the multifamily front lines

Apartment broker Ron Spraggins of Commonwealth Real Estate says his company is working with three large institutional buyers who individually own between 40,000 and 150,000 apartments units throughout the country.

“We wrote offers for more than $100 million on Denver apartments in the past two weeks,” he said.

Spraggins takes issue, however, with recent first-quarter absorption reports from other multifamily researchers who divide the current Colorado Springs apartment inventory into Class A, B and C properties.

He offered his own analysis, based on additional market breakouts.

“The overall (all classes) vacancy was 7.8 percent — not 7.1 (percent) reported by Apartment Insights or 6.9 (percent) quoted by the Colorado Division of Housing,” he said.

Here are Spraggins’ assessments, based on apartment community age and geographical location, the latter of which he believes others fail to address.

– Class A: 5.8 percent overall. Range from 5 percent to 6.3 percent, depending on geographic location.

– Class B: 7.2 percent overall. Range from 6.9 percent to 8.5 percent, depending on location.

– Class C: 11.4 percent overall. Range from 7.8 percent to 15.3 percent, depending on location.

– Class D: 12.7 percent overall. Range from 10.2 percent to 16.3 percent, depending on location.

Becky Hurley can be reached at 719-329-5235 or becky.hurley@csbj.com. Friend her on Facebook.