Commercial lease rates rise with lower inventory

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Lower commercial real estate vacancy rates led to higher rents in the second quarter of 2017, compared to the first quarter of the year, according to the latest Colorado Springs market numbers.

Caleb David, broker at Cameron Butcher Commercial Real Estate, said increased demand over the summer is fueling rent hikes.

“We’ve seen rates go from an average of … around $12 per square foot, [to] $14, $16, sometimes up to $20,” David said.

David said the outlook is positive thanks to small businesses moving out of homes and relocating in available spaces.

In CBRE’s 2017 market outlook, the region’s population growth, employment, gross domestic product and home sales are predicted to be better than in previous years and are projected to continue their climbs.

The 2017 Cameron Butcher market report for the second quarter showed growth downtown, including the construction of the U.S. Olympic Museum and Hall of Fame, a Hilton Garden Inn hotel and 333 ECO, a 172-unit apartment complex on East Colorado Avenue scheduled to open in the summer of 2018.

Office space

Other Realtors are reporting positive growth and are predicting continued hikes as space grows more scarce.

“I think we will continue to see upward pressure on lease rates until we have new product that’s available in the market, because … we’ve really absorbed a lot of space,” said Peter Scoville, office and investment specialist for Cushman & Wakefield Commercial Real Estate Group.

According to the agency’s commercial market overview for Class A and B office space in the city, the second quarter vacancy rate was 15.63 percent, down from 17.8 percent at the start of 2017. Net absorption was 33,552 square feet, while first quarter net absorption was more than 185,000 square feet.

Retail market

The retail market also has seen increased interest during the summer, said Manny San Fernando, senior broker for Kratt Commercial Properties. National, regional and local tenants want to occupy space in Colorado Springs, he said.

According to CoStar’s 2017 Second Quarter Retail Report for Colorado Springs, the retail vacancy rate increased to 6.3 percent with a net absorption of 40,624 square feet. Average asking rental rates decreased from $12.68 in the first quarter to $12.63 last quarter.

The areas demanding the highest rents are at the University Village Colorado retail center on North Nevada Avenue and the Broadmoor Towne Center to the southwest.

Multifamily market

The big winner in the Springs market is apartment units, said Michael Howard, multifamily investment specialist for Hoff & Leigh Colorado Springs.

“From a seller’s standpoint, you’re getting top dollar for your properties right now,” Howard said. “From a buyer’s standpoint, they’re willing to invest in it because it’s a stable type of investment.”

According to the Apartment Association of Southern Colorado, in the second quarter Colorado Springs metropolitan area has a 6.4 percent vacancy rate. The average rent is listed at $1,141 compared to $1,060 last quarter. This quarter, 403 units were added for a total of 770 for the year. Net absorption in the second quarter was 907 units in Colorado Springs. In 2016’s second quarter the net absorption was 385.

Industrial market

According to CoStar’s 2017 Second Quarter Industrial Report, vacancy rates decreased to 9.2 percent from 9.4 percent, absorption was 72,056 square feet and average asking lease rates increased from $6.90 square feet to $7.48. Three new buildings were brought to the market while 163,440 square feet remained under construction.