Commercial market’s pulse returns

Filed under: Print,Real Estate | Tags:,

The commercial real estate outlook is a little rosier for 2012, thanks in large part to Wal-Mart and nonprofit organizations.

Although office vacancies remained unchanged this year, retail and industrial vacancies dropped some, according to Sierra Commercial Real Estate.

Throughout the city, office vacancies are about 17 percent — but that number trends higher in the northern area of the city and near the airport.

For the empty space in northern Colorado Springs to be full, there would need to be 2,000 new jobs — a number far below the 930 announced this year.

And space at the airport is about 30 percent empty, signaling a change in the way defense contractors are operating, said Sierra Managing Director Randy Miller. Because the Pentagon has focused on fighting two wars during the past decade, contractors that specialize in high-tech aerospace research and development have been left out of the defense budget.

But while 2011 proved to be a tough year for commercial real estate, there were some promising signs, leading realtors to hope for a better tomorrow.

“We’re feeling a little different about the coming year,” said Kent Mau, managing director for Sierra. There’s more interest and activity in the office market and reason for some optimism, he said.

Sierra managing director Brian Wagner said he’s been taking calls from interested parties, which wasn’t happening during the recession.

Most of the activity in the office market has come from users like USA Volleyball and the Pikes Peak Library District buying their own buildings at low prices.

“The market has created opportunity for these users to own their own real estate,” Wagner said. “This is really the year of the user.”

It’s also the year of Wal-Mart, said Sierra senior managing director Mark Useman.

Wal-Mart is driving a lot of the positive absorption in the retail market, Useman said. The world’s largest retailer is planning to build a supercenter and Sam’s Club on 89 acres near I-25 and South Academy Boulevard. It will be completed at the end of 2013 or early in 2014 if Wal-Mart goes through with the plan.

The company also announced four new grocery outposts — two of them in older shopping centers.

“God bless Wal-Mart,” Useman said. “Those centers are really going to help a lot.”

He said two of the Wal-Mart grocery outposts will go into older shopping centers that suffer high vacancy rates and that those centers should begin filling back up with a solid anchor like Wal-Mart drawing traffic into them.

The retail vacancy rate is typically between 7 and 9 percent in a healthy market. It jumped to 11.4 percent in 2009 and just started to fall this year. The vacancy rate at the end of this year will be 10.75 percent, Useman said.

“We’re finally starting to show a little bit of a positive trend toward lower vacancies,” he said.

While the average vacancy is still high, the rate in anchored shopping centers built after 1994 is only 4.2 percent. That’s down from 4.5 percent in 2010.

“That rate has stayed very healthy,” Useman said.

Retail spending is also trending upward. Retail sales peaked in 2007 at $13.8 billion, Useman said. They fell to a low of $12.6 billion in 2009 and are expected to hit $13.5 billion this year. While the total is getting better, the population has also increased dramatically, Useman said, which means per capita spending is down.

The year has seen some positive movement in the industrial real estate market as well with average leases rising from $5.91 per square foot at the beginning of the year to $6.10 now.

“There’s no new speculative construction going on,” said Sierra managing director David Bacon. “That’s good.”

He said a lack of new construction is allowing the absorption of long-vacant properties. The vacancy rate fell from 11.24 percent in 2010 to 10.4 percent now, Bacon said.

Sales activity is down. Where there were 40 sales of industrial facilities in 2008, there were only 15 this year. The price per square foot dropped from $69 in 2010 to $58, Bacon said.

There are some industrial properties that people might lease now for $4.50 per square foot that is outdated and that will likely be torn down when the market turns around and there is new construction again, Bacon said.

The health of the industrial market also depends on job growth in Colorado Springs. And there have been a handful of positive announcements this year regarding new jobs. One with particularly good news for the industrial market was Bal Seal, which was expected to close on land this week and begin construction on a new facility here where it will employ more than 100 workers.

Otherwise, smaller users moving out of small spaces and garages are beginning to make moves into the market, Sierra director Aaron Horn said.

Sierra president David Delich said the trends in all of the markets are looking more positive with users and entrepreneurs buying and leasing new space and vacancy rates slowly sliding down. However, investors aren’t coming out yet and market and political uncertainty will likely suppress the market through the next election.