Colorado Springs' commercial real estate market needs more jobs to continue its recovery

By Rich Laden Published: December 10, 2013 | 5:40 pm 0

Colorado Springs' commercial real estate market should continue to rebound in 2014, but the area needs more jobs to maintain its momentum, according to a forecast by brokerage Sierra Commercial Real Estate.

As the year ends, several indicators are pointing toward an improving commercial market, including lower vacancy rates, Sierra officials said Tuesday.

"I wouldn't call it a five or six on the Richter scale, but we've certainly had a shift in the market," said Sierra president Dave Delich. "We're moving in the right direction."

The area's job picture also has improved; the unemployment rate fell to 8.1 percent in October, the lowest in nearly five years. More jobs would translate into an increased demand for commercial space and higher lease rates for landlords, who had to drop rents when the economy tanked.

"That's the critical element in improvement in 2014," Delich said. "We need to have jobs come into the marketplace, both internal growth and external relocation into the market, in order for this area to become healthier as we go through '14."

Highlights of Sierra's 2014 forecast, which has a similar positive tone to one released last week by Springs brokerage Quantum Commercial Group, include:

- Office: The local vacancy rate should finish the year below 15 percent, down from 16.8 percent last year. Because fewer employers are expected to downsize or close, and with little, if any, construction, the vacancy rate should drop further next year - although federal spending cuts could hamper the gains.

The north side office market has improved markedly from the past few years in terms of stepped up leasing. The downtown office market has stabilized, but the southeast side continues to struggle.

Likewise, out-of-town investors have shown confidence in the Springs by making major office purchases, such as an $18.7 million acquisition of the north side Prime Center office complex in the Briargate Business Campus. "New capital coming into Colorado Springs is always exciting, when we look at office buildings,"" said Sierra's Mark O'Donnell.- Retail: The area's vacancy rate will end the year near 10.4 percent, down from 11 percent last year, and will continue to fall in 2014. Lease rates declined by about $1 in 2013 to an average of $11.68 per square foot, but rates are expected to rise next year.

However, retail continues to be a tale of two markets, said Sierra's Mark Useman. Anchored shopping centers built before 1994 have a vacancy rate of 19 percent, but anchored centers constructed after that year had a vacancy rate of just 2.5 percent, he said. Lease rates at older centers averaged about $11 per square foot; rates at newer centers average twice as much.

Several new centers are expected to see significant retail additions in 2014, including the Bass Pro Shops-anchored Copper Ridge at Northgate, InterQuest Northgate and University Village Colorado.

Strong housing construction in the Fountain Valley south of Colorado Springs should continue to spur retail development in those areas. Useman said he expects the Markets at Mesa Ridge shopping center in Fountain to see additional retail activity.

As new construction heats up and storefronts fill up, lease rate should begin to rise next year, he said.

- Industrial: Even as more jobs are needed, there has been enough hiring so that industrial vacancy rates will fall to near 9.3 percent by year's end, down from 10.1 percent last year, said broker Aaron Horn. That trend should continue next year, he said.

Also, average lease rates that rose slightly to $6.22 per square foot in 2013 should climb next year.

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