An improved economy has brightened the outlook for local commercial real estate, but the market still has far to go before it fully recovers from the downturn of the last several years.
That's the gist of a second-quarter report on the market by Turner Commercial Research, a Colorado Springs firm that tracks the commercial real estate industry.
The combined vacancy rate for area offices, industrial buildings and shopping centers was 11.5 percent in the second quarter, unchanged from the first quarter, but down from 12.1 percent in the second quarter of 2012, according to the Turner report.
As demand for commercial space increased, so did rents. The rent for commercial space averaged $9.73 per square foot in the second quarter, up a dime from the first quarter and up 13 cents from last year's second quarter.
By comparison, the vacancy rate was under 7 percent in 2006 before the economy fell into recession; average asking rents at that time were $10.39 per square foot.
"Colorado Springs is experiencing what might be seen as the beginnings of an economic recovery," Paul Turner, of Turner Commercial Research, said in his report. "Nothing startling, but there are more positive signs than negative."
Peter Scoville, a principal with the office division of Cushman & Wakefield/ Colorado Springs Commercial Real Estate, said conditions in the office market have improved, although they've stopped short of a "monumental shift."
Many companies that had cut back or downsized over the last five years now are continuing to occupy the same amount of office space or are poised to increase their occupancy as they commit to growth plans, Scoville said.
At the same time, he said, some businesses feel the economy no longer is in a constant state of doom-and-gloom, he said.
"Whether it's perception or reality, there's a certain amount of this 'the environment feels better' aspect of things," Scoville said.
Local and out-of-town real estate investors, meanwhile, feel better about the market and have made a half dozen purchases of office properties since the start of the year, Scoville said.
While some of the properties were priced low or their owners were in financial trouble, the investments nevertheless signal that well-capitalized investors are attracted to the Springs' office market, he said.
Still, in order for the commercial market to completely recover, the Springs area needs better job growth, Scoville said.
"I remain optimistic, but not overly bullish," he said. "It's going to continue to get better. But that line is not going up at a steep rate. We'll see some dips here and there, and some gains here and there. We're going to see, net overall, the arrow going up, both in terms of pressure on (lease) rates, at least for the higher quality products, as well as vacancies declining."
According to Turner's report, individual sectors of the market showed:
- The vacancy rate for offices was 13.7 percent in the second quarter - unchanged from the first quarter, but down from 14.9 percent in the second quarter of last year. Office rents averaged $10.23 per square foot in the second quarter; they were $10.26 in the first quarter and $10.27 a year ago. Obsolete and unusable space is one reason rents have not improved, Turner said.
- The vacancy rate for industrial buildings - such as manufacturing plants and warehouses - was 9.1 percent in the second quarter, down from 9.3 percent and 9.8 percent in the first quarter of this year and second quarter of last year, respectively. Industrial rents averaged $6.30 in the second quarter, up from $6.23 earlier this year and $6.09 a year ago.
- The shopping center vacancy rate was 12.3 percent in the second quarter; it was 12.2 percent in the first quarter and 12 percent a year ago. Rents improved, however, averaging $12.66 per square foot in the second quarter, up from $12.43 in the first quarter and $12.46 last year. Shopping center rents are highly subjective; they're tied to location and whether a center is anchored, Turner said in his report.
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