Local commercial market continues slow ascent

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A Colorado Springs-based real estate firm’s quarterly report indicates that the local commercial market continues to lag behind many others in its climb to pre-recession health. Quantum Commercial Group LLC’s second-quarter market report showed vacancy rates are down in the office and retail submarkets, while they remain flat for industrial space.

Quantum also reported that net absorption remained stable throughout the market and was marked by a few large transactions and ongoing construction projects.

Retail market

Quantum reported the retail market remains strong, with help from grocery stores and clothing stores supported by population growth.

“The largest retail benefactors of increased sales in 2014 are grocery stores — up 14.6 percent from the same time last year — and clothing stores — up 9.8 percent,” according to Quantum. “Additionally, the population of Colorado Springs has continued to grow at pre-recession levels [1.5 percent in 12 months].”

“All of these numbers are having and will have impact on retailers here,” the report states.

Average vacancy rates dropped from 6.4 percent at the end of Q1 to 6.3 percent after Q2 while net absorption was up a positive 7,455 square feet in Q1 to compared to 84,072 square feet in Q2. However, Quantum reported that rental rates continued to drop from $10.70 to $10.67, “showing there is still movement in fundamentals as it is still a tenant market.”

Three retail buildings, totaling 41,994 square feet, were completed in the second quarter, while another 25,116 square feet remained under construction. The amount of vacant sublease space available sat at 37,714 after Q2, compared to 73,689 square feet in Q3 2013.

The firm’s takeaways: “retail center sales will continue to increase as strength in underlying numbers continues to improve and out of market investors continue to find value here.Average asking rental rates should start to head north; [and] the overall recovery will continue.”

Key retail transactions during Q2 included DDR Corp.’s purchase of a 225,062-square-foot space at 7620-7650 N. Academy Blvd. for $30.6 million, Conn Appliances Inc.’s purchase of a 42,664-square-foot space at 345 N. Academy Blvd. for $2.25 million and Vickers Place LLC’s purchase of a 20,400-square-foot space at 2310-2366 Vickers Drive for $500,000.

“All of these numbers are having and will have impact on retailers here. We’re beginning to see this in retail numbers.”

Industrial market

Although lagging behind larger markets, Quantum reported that “the Colorado Springs industrial market has made a number of positive steps towards a recovery.”

The average vacancy rate remained flat at 8.6 percent in the first and second quarters, compared to the national average that fell to 7.7 percent. But the flat vacancy rate wasn’t reported as outright negative, as it remains down from 9 percent during Q4 2013 and 10.9 percent the previous quarter.

Average vacancy rates in the local industrial market remained unchanged over the previous quarter, with a net absorption totaling a positive 5,591 square feet in Q2 of 2014. That absorption was down dramatically from 279,289 square feet in the first quarter.

Vacant sublease space fell to 109,976 square feet at the end of the quarter, and rental rates continue to increase ending at an average $6.19 per square foot.

Key transactions in the industrial market during the year’s second quarter included 38,715 square feet at 11675 Ridgeline Drive leased (renewal) by Liberty Wire & Cable, 26,948 square feet at 802 W. Garden of the Gods Road leased (renewal) by Fittje Brother Printing Inc. and the opening of Bal Seal’s new 155,000-square-foot facility at 1350 Bellprat View.

Office market

Quantum reported an average vacancy rate of 11.7 percent, down slightly from Q1 and with a net absorption totaling a positive 25,475 square feet compared to 30,418 in the first quarter.

Net absorption of the central business district was a negative 92,192 square feet (year-to-date), which Quantum reported “seems to be largely due to Kinder Morgan giving back a large amount of space in 2 N. Nevada Ave..”

No new office space was completed during the second quarter, with 22,920 square feet of office space under construction including the new ANB Bank building — a 15,165-square-foot building at 25. W. Cimarron St. that is 60 percent pre-leased.

“The Colorado Springs office market continues to see a flight to quality [tenants moving to better quality space],” Quantum stated in the report. “Although the investment market has been fairly active, the leasing market has remained mostly flat. Local job growth is necessary to further strengthen the office market.”

“Key transactions” included 35,343 square feet at Corporate Center IIII leased (renewal) by Xiotech, 16,687 square feet at Briargate Tech leased by FrontRange Solutions and 15,153 square feet at NorthCare at St. Francis Medical Center leased (renewal) by Academy Women’s Healthcare Associates.