Commercial real estate energy could forecast 2012 recovery

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New buzz and energy in the commercial real estate market has some local brokers cautiously optimistic that this is the beginning of better times, but others in the industry remain skeptical.

“There’s definitely activity,” said R.D. Trinidad, president and managing broker at Hoff and Leigh. “We’re having more positive inbound calls than we’ve had in several years. Overall sentiment and confidence are up.”

That sentiment was echoed by numerous brokers throughout the city. But first quarter numbers haven’t been compiled yet, making it hard to verify all those “good feelings,” said Ben Lowe, director of market research for Sierra Commercial Real Estate.

“A lot of things that have been announced are just in the announcement stage,” he said, “but won’t hit our data until they actually build.”

Still, there’s a lot of optimism racing through his office, Lowe said. And he’s been noticing more activity come his way, too.

“We’re in the period between good announcements and good energy, and it actually happening,” Lowe said. “That’s how recoveries begin. You have to start somewhere.”

There’s a chance, he said, that this could be the beginning of the recovery everyone has been waiting for.

Peter Scoville, a principal and co-founder at Cushman & Wakefield Colorado Springs Commercial, said he’s optimistic about the new rush of activity.

“We figure we saw the statistical bottom in the second quarter of 2010,” he said.

His firm, which deals primarily with Class A office space, is seeing a lot of new activity and is working with several clients interested in Colorado Springs properties, he said. Some are local and others would be coming from outside the community, he said.

None of the deals that he or partner Greg Pheneuf are working on have matured to the point where they can make announcements about them or even discuss them, they said. But they expect they’ll have several big announcements to make within the next six months.

“These properties are not where you can see them listed,” Scoville said.

Owners with $10 to $20 million buildings generally know who their market is before they decide to sell, and quietly offer their properties under the radar to a targeted group. Because of that quiet scheming, most of the deals that have brokers excited right now won’t show up until they’re done.

“I think at the end of the first half of the year, you’re going to see, for the first time in a long time, a lot of sales activity,” Scoville said.

Once those sales start hitting the books, they could start to push rental rates upward, Scoville said.

“When you start taking big, several-thousand-square-foot chunks off the market like that it impacts overall vacancy,” Pheneuf said. “Then lease rates start to go up.”

But for now, they’re still as low as they’ve ever been, said Jason Baumgartner, director of market research for Hoff & Leigh.

He tracks rental rates and found that they have steadily declined during the last year from $1.05 per square foot to just 96 cents per square foot. Asking rents seem to be leveling out during the last few months, but they haven’t turned upward yet, he said.

“When I saw it, I was totally expecting there to be an uptick in offices,” he said. “Leveling out is not necessarily a bad thing in this market, but it felt different to me. And that’s why I say how you feel and the actual numbers are two different things.”

Brian Wagner, a managing director for Sierra who deals primarily with office space, said he’s trying to remember past trends. There is definitely new activity and optimism in this first quarter, he said.

“But it doesn’t feel dissimilar to the first quarter of 2011 or 2010,” he said.

The first quarter is historically a busy one in the commercial world. The last two years have started strong, Wagner said, and then dropped off dramatically in the spring.

Before the recession, he said his business stayed mostly steady through the year.

Armed with that background information, Wagner said he’s still had a lot of activity this first quarter.

“It feels like companies are out seeking space and it feels like there’s some growth component behind their move or at least room to grow,” he said.

And it’s not just talk or that the phone is ringing more, he said. He actually has more clients.

It’s just a matter of keeping it up.

“I’m cautiously optimistic,” he said. “But I’m reserving judgment for another quarter.”

That’s more optimism than David Bacon has as managing director for Sierra, dealing mostly with industrial space.

He said he’s had a few people making some moves and looking for properties, which is reassuring. He’s also worked on some bigger deals, like the new Bal Seal plant that will go in on the north end of the city and the Wal-Mart data center in the same area.

All the same, he doesn’t see good news on the horizon. He’s had some clients who just haven’t been ready to commit to a lease or a sale even when the deal made sense for them.

“People are scared to death to make a commitment,” he said.

He believes the lack of commitment is a symptom of uncertain times, when employers aren’t about future costs.

Bacon said he suspects the market will not begin to turn a corner until after the election in November.

Financing is still tough to get for commercial projects and cash buyers are only willing to buy if they can get an extremely good deal, he said. Problems occur when sellers look at comparable sales and think their building is worth too much. It’s still a buyer’s market.

The silver lining in the industrial market is that it was not overbuilt, Bacon said. That means there weren’t too many vacancies, foreclosures and bankruptcies during the recession, which has kept lease rates healthier in that market than in office or retail.

While there is a higher overall vacancy in retail space citywide than in the industrial market, retail has been busy this quarter, said Mark Useman, senior managing director at Sierra.

“There are a lot more people out wanting to do things,” Useman said.

He’s working with new businesses opening mom-and-pop operations and big franchises like Kum & Go convenience stores.

“I think people are starting to follow through, and they’re trying to get things accomplished,” he said.

Newer shopping centers remain healthy with low vacancy rates, most under 5 percent. Those on the north end of town are doing particularly well and are refilling empty storefronts quickly.

Useman said he’d like to see more happening downtown. There are several promising locations there, namely the former Bryan & Scott Jewelers at 112 N. Tejon St.

He said there has been interest.

Like most other brokers, Useman said he feels busier and is optimistic, but isn’t ready to declare a recovery yet.