While Colorado Springs real estate insiders have bemoaned the city’s high office vacancy rates, they’re similar to those in other cities the same size, according to Hoff & Leigh Commercial Real Estate.
“The surprising thing is that we’re actually pretty well positioned in comparison to other tertiary markets,” said Hoff & Leigh researcher Jason Baumgartner.
The office vacancy rate in Colorado Springs during the third quarter was 15.25 percent. While that’s higher than the norm of around 10 percent, it’s on par with what other cities are seeing, Baumgartner said.
Hoff & Leigh launched a research project at the beginning of the year to track office, retail and industrial real estate markets in similarly sized communities. But Baumgartner found that making accurate out-of-market comparisons is more of a challenge than he expected, because communities report data in different ways.
Office vacancies, however, are the simplest to compare, so it’s the first report o be released by Hoff & Leigh.
The analysis stacks Colorado Springs next to Ogden, Utah; Albuquerque, N.M.; Austin, Texas; Fresno, Calif.; Boise, Idaho and Omaha, Neb.
All cities in the sample have 1 million or fewer residents and are near a larger city or are the largest city in their state.
“Four of the seven are really close,” Baumgartner said of the cities he’s comparing. “And it’s pretty positive in Colorado Springs’ favor.”
The Springs ranks third among the comparison cities for overall office-market health. The two outliers in the group are Ogden and Omaha. Omaha has a comfortable 11.8 percent office vacancy rate and Ogden suffers a 26.7 percent office vacancy.
“The next step will be to talk about trends and find out what is happening in those other markets,” Baumgartner said.
He said Omaha has a healthy business environment partially because Warren Buffett’s Bershire Hathaway is based there and that there is a lot of industry and economic activity he wouldn’t have expected. Companies like Albertsons and Micron have corporate headquarters there.
“They’re doing well. Wouldn’t it be great to find out why so we can copy that?” Baumgartner said.
Ogden shares many of Colorado Springs’ challenges. It’s located about an hour from Salt Lake City, just as Colorado Springs is an hour from Denver.
“Boise and Omaha are the biggest cities in their regions,” Baumgartner said. “It’s a bigger issue for retail. Here and in Ogden you’re just 40 minutes from a huge mall.”
He’s struggled to compare rents in the different markets even in office spaces because the Colorado Springs market calculates rents with no frills and other markets quote full-service rents, which include things like trash and cleaning service that are rolled into the rent for most buildings.
He said brokerage firms in comparison cities have been interested in the project.
He thinks Boise is one of the most comparable markets.
“They’re in the foothills of the Rockies,” Baumgartner said. “There’s a lot of recreation activity there.”
It has an office vacancy rate of 14.6 percent, slightly lower than Colorado Springs’.
Marc Stimple, a broker at Thornton Oliver and Keller Commercial Real Estate in Boise, said the city has seen dramatic improvement over the last year in its office vacancy rates. The rate was more than 16 percent in August of 2010.
Colorado Springs has also had positive absorption and declining vacancy rates for the last three quarters, Baumgartner said.
A differing factor, Stimple said, are the reasons that drove up vacancy rates in the first place.
“For us, it was definitely a loss of jobs that caused the high vacancies,” Stimple said.
Boise did not overbuild, he said. The problem was simply that companies shuttered their doors and emptied their desks.
Research from Hoff & Leigh and Sierra Commercial Real Estate both show that Class A office space and especially the newly built space in the north part of Colorado Springs drove high vacancy rates. Class A vacancy rates in Colorado Springs were over 20 percent in the third quarter and Hoff & Leigh reported that more than a third of all office vacancies were in the north part of the city.
Those factors suggest that Colorado Springs, suffered vacancies not only because of job losses, but also because of surplus inventory.
“The new office space that’s been built here, has just drawn tenants from the old spaces,” Stimple said of Boise. “The older spaces are the ones that are suffering.”
He added that the city has one region that was not impacted as much by the downturn. The office vacancy rate in the Boise’s downtown core is lower than 7 percent. And Stimple has heard that a new office building yet to break ground downtown is already more than 90 percent pre-leased.
He said the growth and improvement in the market is primarily coming from growing local business and start-ups.
Baumgartner hopes the analysis will foster conversations about what drives market conditions.
|Third quarter office vacancy rate comparison|