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Grubb & Ellis 2011 forecast: What’s in store for Colorado Springs?

Wed, Jan 5, 2011

News

I sat down with Grubb & Ellis Office and Investment Professional Andy Oyler at the Starbucks on the corner of Tejon and Bijou this week to discuss what’s on tap for the Colorado Springs real estate market in 2011.

Here’s a summary of what the firm expects from each market segment in the year ahead, with Grubb & Ellis’ thoughts in italics.

Office:

The 2011 office landscape shows a tenant’s market wherein attractive lease rates and concession packages rule the day, creating further challenges for landlords.

Good news for tenants is bad news for landlords. Grubb & Ellis has seen improvement in vacancy and absorption rates in this market, but expects lease rates to decline and tenant improvement packages from landlords to increase.

“The main challenge for tenants will be narrowing down their options,” Oyler said. ”But it’s a great time for tenants to lock-in a lease at good rate. Landlords are offering a lot of concessions right now.”

Industrial:

Opportunities abound for savvy buyers and tenants during the economic recovery. Sales prices and lease rates have rolled back to levels not seen in over a decade.

In other words, the picture is not as rosy for the industrial market. Grubb & Ellis expects sale prices and lease rates to continue the downward trend in the near-term, with the hope that things will stabilize later in the year.

Still, there’s a glimmer of hope – the absorption rate, which has been negative for the past three years, finally turned the corner into positive territory.

The firm described this development as “nominal,” but it’s better than the alternative.

Retail:

Forbes Magazine rated Colorado Springs sixth of the top 10 housing markets for investors based upon anticipated increases in housing prices in the next few years.

Grubb & Ellis believes that a healthier residential market will result in a healthier retail market. The logic is that stability in home prices means stability in the job market, which will lead to increased retail activity.

“(Residential) foreclosures are going down, and the commercial retail market typically follows that,” Oyler said. “There’s a little more confidence creeping into the market.”

But the firm acknowledges that unemployment remains high, and a lot of employers are in “wait-and-see mode.”

Investment and Land:

Transaction volume is increasing in primary markets with investors bidding on quality assets. As economic conditions improve, investors will evaluate properties in secondary markets.

Grubb & Ellis believes that investors will turn away from high-cost properties in major metropolitan areas to seek out deals in the Colorado Springs market.

There hasn’t been much activity yet, but with a glut of high-quality and distressed assets prepped to hit the market, expect a feeding frenzy when the shoe finally drops.

“Northcare (a medical building next to St. Francis Medical Center in northern Colorado Springs) just sold. There’s been a lot of fear on the investment side and hopefully that’s starting to diminish,” Oyler said. “And banks are interested in financing; they’re finally starting to loosen up.”

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