Report: CRE market improves with jobs, investment

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The Colorado Springs commercial real estate market continued to see slow growth during the first quarter of 2015, with land investments and planned development spurring the region’s hope for cross-cutting growth in the year to come, according to Quantum Commercial Group’s quarterly report.

The report, released this week by the Colorado Springs-based real estate firm, cited recent job growth and the news of promising commercial ventures as indicators of an improving market — and one that is approaching saturation.

“There has been an uptick in all sectors, which is a great indicator that things are doing better across the market,” said Quantum President Dale Stamp. “All of the announcements so far have been much more positive than negative. We’re optimistic.”

The report highlighted announcements of company relocation and job creation in the city, which Stamp said will help to stabilize the market and entice potential investors, home builders and developers who otherwise would have looked to Denver and the northern parts of the state.

The most prominent announcement — one that is referenced multiple times in the report — was news that aerospace firm Sierra Completions chose the property near the Colorado Springs Airport to locate its headquarters. The company plans to construct a 90,000-square-foot, $88-million hangar facility there and create an estimated 2,100 local jobs over the next five years.

“The Sierra deal is a huge opportunity for the airport area and the city as a whole in turning things around … in an area of town that has suffered in the past,” Stamp said.

Stamp said that despite our continued health, it may take another five years (construction costs are still prohibitive) before the Colorado Springs market begins to approach the success experienced by Denver and its surrounding communities.

“They’re just off the charts up there,” he said. “Most indicators across the country rate northern Colorado as the fastest growing market in the country … but a lot of people would still love to be here. We’re still well positioned and our rates are very low to entice people from across the country to come here.”

Retail market

An increase of private sector jobs in Colorado Springs over the last two years has contributed to the biggest sales tax increase in a decade, as well as growth in the local retail environment, according to Quantum’s report.

The overall retail market vacancy rate fell from 5.8 percent at the end of 2014 to 5.7 percent during the year’s first quarter (down from 6.8 percent the same time last year). First quarter net absorption was at 69,431 square feet and the market-wide retail asking rate was at $11.09 a square foot, up from $10.99 in December (a 3.52 percent increase year over year).

Unlike other markets in Colorado Springs, retail saw the construction of four new buildings totaling 48,836 square feet in the year’s first quarter. Most of that construction was attributed to the 30,000-square-foot Magnum Shooting Center at Polaris Pointe in northern Colorado Springs.

The north and northeast submarkets saw the largest rental asking rate gain at 3 percent, while downtown Colorado Springs averaged a rate increase of 2 percent. The city’s only submarket that did not experience an increase in rental asking rates was the northwest.

“This progress should continue in the second quarter of 2015,” Quantum reported, adding that job growth and investment sales should help that along. “The retail market continues a slow but enduring recovery.”

Office market

During the year’s first quarter, Quantum reported that net absorption for the city’s office market was at positive 148,101, compared to negative 40,222 square feet in the fourth quarter of 2014.

“This was the strongest quarter in over a year and hopefully is the harbinger of more positive absorption in 2015 and into 2016,” according to the report.

The local office market also experienced a decrease in vacancy to 11.7 percent in the first quarter, compared to 12.3 percent in Q4 2014.

“The vacancy rate followed absorption closely and will continue to do so with no new space being developed in the near term,” Quantum stated in the report.

Conversely, average quoted rental rates across all markets dropped 2.8 percent from $17.02 in Q4 2014 to $16.54 per square foot. Quantum forecasts increased rates as positive absorption continues to grow.

“Steady, moderate growth is expected for 2015,” according to the report. “The office market will continue to see a flight to quality (tenants moving to better quality space). We expect slow growth in lease rates and absorption in the near term with stronger growth in the next couple of years.”

As with the industrial market, Quantum cited the soon-to-be-constructed Sierra Completions manufacturing center to be built at the Colorado Springs Airport, and the 2,100 jobs it is estimated to create, as an upcoming boon for the office market and the region’s overall economic health.

“We expect to have more positive employment news as the year progresses,” it said.

Industrial market

“The Colorado Springs industrial market is looking more positive,” Quantum said in its industrial report introduction.

The city’s industrial sector is continuing to rebound from recession lows, the report said. During the first quarter of the year, the market saw a drop in vacancy to 8.3 percent, a drop in rental rate quotes to an average of $6.15 per square foot and a net positive absorption of 33,097 square feet.

Although the market still lags behind the growth experienced by Denver and northern Colorado, Quantum said that several acquisitions and planned developments are helping to create a more competitive market for industrial space in the city.

“Existing growth in northern Colorado Springs has Colorado Springs hopeful that it will experience a trickle-down effect as rental rates continue to climb and vacancy rates fall in that northern market,” according to the report.

Sierra Nevada Corporation’s recent decision to locate the 90,000-square-foot, $88 million headquarters of subsidiary Sierra Completions at the Colorado Springs Airport, and the 2,100 jobs it is estimated to create over five years, has spurred hope for a sharp uptick in industrial activity in the city, according to the report. FedEx has also announced a 225,200-square-foot distribution facility that is set to open at the airport next year.

The competition created by such development is expected to spur increased rental rate quotes, especially for spaces under 10,000 square feet, which the report stated have become scarce. The report also indicated that this growth could contribute to collaboration among smaller users in larger spaces, and perhaps increased industrial construction.

“For the rest of 2015 and into 2016, we expect further recovery and renewed strength in the Colorado Springs industrial market,” Quantum stated in the report. “The expanding needs of current industrial users will push rental rates up and vacancy rates down, while properties remain much more competitively priced than in larger markets like Denver and the surrounding areas, making Colorado Springs a likely place for industrial users to invest.”

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