Sierra’s recap – positive yet uncertain

The Promenade Shops at Briargate sold to an outside investor this year, enhancing the overall retail submarket.

The Promenade Shops at Briargate sold to an outside investor this year, enhancing the overall retail submarket.

Sierra Commercial Real Estate’s annual Colorado Springs Market Outlook, released Tuesday, shows positive indicators of market growth and health from the past year while conveying the uncertainty — yet hope — for continued reinvigoration.

“As 2013 begins to wind down, it is apparent that there has been a slight shift in the regional marketplace with most indicators pointing towards an improving economy for commercial real estate,” wrote Sierra President David Delich in the report’s introduction.

And for the most part, 2013 was an encouraging year for the regional market: Both vacancy rates and net absorption rates were positive in the office, retail and industrial submarkets, while construction activity was up slightly for retail and stable for office.

But El Paso County still lags behind state averages for unemployment, the resolution of which could be key to further improving the local real estate economy. The report suggests that the city is on the right path to achieving job and residential stasis — in 2013, both job gains (4,700) and housing starts (2,600) nearly doubled 2012 numbers — which informs the commercial market.

But the Springs is far from where it once was, and Sierra’s team is staying practical about its inability to predict what might happen next year — instead focusing on the success of 2013 and what it could mean.

“It is unclear at this time whether a trend towards historical levels of job growth, low unemployment and absorption is taking place, or that 2013 was just an anomaly from the previous five years.”

Office market

The report suggests that the office market in Colorado Springs improved at a much stronger pace than in previous years.

Leasing activity has potential to top 1.2 million square feet for 2013 with higher levels of absorption, lower vacancy rates and decreased construction activity, according to the report. The only negative trend reported by Sierra was a decrease in lease rates for the year, which the brokerage team expects to be driven up soon by demand.

“We’ve clearly turned the corner,” said Kenton Mau, senior managing director of office brokerage services. “We’ve seen more transactions this year than we have in quite a while.”

The report shows that office vacancy rates have dropped nearly 2 percent since 2012 and are currently about 15 percent, amounting to 4 million square feet of vacancies in an office market of 28 million square feet. Mau said that every submarket of the office sector has improved and that Colorado Springs “doesn’t have far to go to get to a stabilized market.”

According to Mau, the past few years in the office market has been like “riding in a car with four flat tires,” but that “there seems to be some inflation in the tires right now and there’s traction in the marketplace.”

The year was marked by big sales in the northern part of the city:

• The PrimeCenter at Briargate, a 214,638-square-foot, five-building campus at the intersection of Briargate Parkway and Chapel Hills Drive, sold for $18.7 million.

• The Ford Motor Credit building, a 167,966-square-foot building at 9910 Federal Drive, sold for $11 million.

• Academy Point Offices, an 82,984-square-foot complex at 1030 S. Academy Blvd., sold for $5.5 million.

• Lexington Center, a 77,000-square-foot building at 7899 Lexington Drive, sold for $1.95 million.

Retail submarket

Colorado Springs’ retail submarket has had a significant year marked by new development and large sales, the report suggests.

“There are some really good signs that show that we are kind of slowly recovering, and our growth is obviously related to our retail growth, as is the rest of our commercial growth in Colorado Springs,” said Mark Useman, senior managing director of retail brokerage services.

Vacancy rates have dropped from 11 percent during fourth quarter 2012 to 10.4 percent near the close of 2013, and net absorption is the highest since 2010 at 350,000 square feet — compared to 38,000 last year — out of a total for leasing activity of 800,000 square feet.

Useman said that “2013 was really kind of a lackluster year in new retail construction,” but the report suggests that it was huge for retail property transactions in Colorado Springs due to a few major deals:

• The 231,847-square-foot Promenade Shops at Briargate, located at 1885 Briargate Parkway, sold for nearly $97 million.

• Garden Ridge leased a 128,000-square-foot retail space at 335 N. Academy Blvd.

• The K-Mart Shopping Center, a 126,985-square-foot facility at 3012 N. Nevada Ave., sold for $7.75 million.

• An 85,000-square-foot section of Monument Marketplace, located at the intersection of Leather Chaps Drive and Jackson Creek Parkway, sold for $23.5 million.

Another major market accomplishment this year was the opening — although the building permit was pulled in 2012 — of Bass Pro Shops, a 120,000-square-foot outdoor retail mecca anchoring Gary Erickson’s fledgling Copper Ridge at Northgate development.

Industrial market

“Industrial is starting to see some interesting things happen,” said Aaron Horn, director of industrial brokerage services.

Among the interesting things Horn mentioned was a reported decline in vacancy rates from 10.1 percent to 9.4 percent.

Lower vacancies can result in increased lease rates, which in this case are up $0.61 per square foot since “bottoming out” in 2012 and currently are at $6.22.

“Space is getting pretty tight, so we’ll continue to see those rates climb,” Horn said, explaining that vacancy rates need to be about 8 percent to warrant an an increase in industrial construction.

Absorption has also increased by roughly 250,000 square feet to around approximately 850,000 square feet, but still lags behind the yearly average of more than 1 million.

“While overall trends seem to be positive for the Colorado Springs industrial market, investment and new development activity has been slow to recover,” according to the Sierra report.

Major buyers and lessees in the industrial property market this year were:

• M&J 2150 GG LLC, which purchased a 76,000-square-foot manufacturing facility at 2150 W. Garden of the Gods Road for $2.6 million.

• Diversified Machine Systems, which bought a 67,000-square-foot manufacturing facility at 1068 Elkton Drive for $2.5 million.

• Bett Ventures, which purchased a 52,000-square-foot manufacturing facility at 10045 Federal Drive for $2.5 million.

• High Performance Engineering, which leased an 85,000-square-foot manufacturing facility at 4435 Arrowswest Drive.