Report: Commercial market continues to improve slowly

A recent market report from Colorado Springs-based Quantum Commercial Group has indicated continued recovery for the local commercial real estate market — slow as it may be.

Quantum’s first market report of 2014 reviewed data from the year’s first quarter, tracking flat or sluggish trends in the metropolitan area’s office, industrial and retail markets.

But despite the lack of definitively positive news, average vacancy rates continue to trend downward in most markets, driving up absorption and reinforcing rental rates, implied the report.

Office

The report indicated that the Colorado Springs office market remained “relatively flat” throughout the year’s first quarter.

Vacancy was also flat across the market, with an average rate of 11.8 percent. Vacancy rates were lowest in the Central Business District (7.5 percent), Southwest (8.5 percent) and Teller County (9.1 percent) submarkets, and highest in the Southeast (13.2 percent), Northwest (13.1 percent) and North (12.7 percent) submarkets.

“After two quarters of negative absorption, the office market saw a slight uptick in the first quarter of 2014 posting a positive overall absorption of 16,923 square feet,” according to the report.

Quantum reported that the Class B market fared well, with 60,203 square feet of positive absorption, compared to a negative of 30,273 in the Class A market. The highest rates of average net absorption were found in the Greater CBD (56,899 sq. ft.), North (44,062 sq. ft.) and Southeast (62,519 sq. ft.) submarkets.

The report explains that although Colorado Springs has not yet seen the rise in office activity expected this year, the market appears to be trending more positively than in years prior to 2013.

“We expect continued slow growth in lease rates and absorption as the market advances towards equilibrium in the next few years,” according to the report. “The addition of new jobs will be needed to fuel absorption and occupancy rates in 2014 and allow a slow and steady advancement in the right direction.”

Industrial

Quantum’s report indicates the Colorado Springs industrial market is trending toward full recovery, with both decreased vacancy rates and increased net absorption in the year’s first quarter.

According to the report, vacancy rates were down in the first quarter to 8.3 percent from 8.5 percent in the previous quarter. The metro area’s lowest vacancy rates were seen in the North (2.7 percent), Southwest (0.6 percent) and Teller County (1.7 percent), while the highest rates were seen in the Greater CBD (14.5 percent), the CBD (10.3 percent) and Northwest (16.4 percent) submarkets.

Overall net absorption for the market was tracked at 278,389 square feet, although submarkets CBD, Northwest, Southwest and Teller County remained at zero. The highest absorption was experienced in the Northeast (106,968) and Southeast (129,736) submarkets.

As an aside, the report included a brief segment on how the medical marijuana market may have helped the recovery of the industrial market throughout Colorado:

“The Industrial Market for Colorado Springs much like Denver continues to experience a significant amount of demand for medical marijuana users since the approved ballot initiative to legalize marijuana in November 2012,” according to the report.

“This alone has significantly helped with the recovery.”

Retail

The retail portion of Quantum’s report states that “sluggish recovery proves resilient,” and explains that the market continues to slowly bounce back from recession lows.

Although average vacancy rates remained at 6.4 percent for the second consecutive quarter, overall absorption experienced a gain of 7,455 square feet.

The lowest retail vacancy rates were seen in the Downtown (3.7 percent), Southwest (1.8 percent) and Teller County (5.1 percent) submarkets, while the highest were seen in the East (10.5 percent), North/Northeast (5.8 percent) and Southeast (6 percent) submarkets.

Net absorption was highest in the East (86,398 sq. ft.), Downtown (22,469 sq. ft.) and Southeast (1,414 sq. ft.) submarkets, while it was most negative in the North/Northeast (-71,731 sq. ft.), Southwest (-10,717 sq. ft.) and Teller County (-16,956 sq. ft.) submarkets.

Average rental rates also continue to trend downward and reached $10.70, down from $10.84 in the last quarter of 2013.

“Although this indicates some continuing market weakness, it is a good sign for tenants wanting to expand or relocate,” according to the report. “The onslaught of tenants ‘shopping’ for lower rates seen at the beginning of this downturn is a thing of the past, so the lower rates will now benefit relocations and startups.”

Another issue contributing to the sluggish quarter for retail submarkets was a decline in new construction to 10,883 square feet. nCSBJ