Springs’ commercial real estate looks strong for 2018

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Commercial and residential real estate are expected to remain strong in the Colorado Springs area this year, according to a forecast compiled by Quantum Commercial Group Inc., which predicts that vacancy rates will continue to slowly move downward.

“We’ve been in a positive rebound market for a number of years, led by residential,” said Andy Oyler, a realtor at Quantum Commercial Group who specializes in leasing and sales for office and industrial spaces. “Residential has been really strong for homes under $400,000. What’s typical in a rebound market is that residential takes off and commercial catches up.”

According to the forecast, strong economic conditions and continue job growth in the Springs will positively impact sales and values of commercial real estate.

When it comes to commercial leases in the Springs, Oyler said retail space has seen the most activity, with industrial space next in the rebound process, followed by office space.

“There has been really good absorption in retail space and vacancies are way down,” Oyler said. “We’re in a market where there are more boutique spaces, and it’s hard for some big box national companies to survive [because of consumers’ online purchasing].”

In 2017, there were 23 new buildings that added 374,905 square feet of retail space; according to the report, absorption was 355,071 square feet. The forecast is for an additional 257,300 square feet of retail space to be built in 2018.

Retail vacancy is expected to range from 5.9 percent in the beginning of the year to 5.5 percent by year’s end, with cost per square foot in the $12-13 range for a full-service lease.

Population growth will be the “saving grace” of the city’s retail market in 2018, according to the report, as many flee Denver for lower-priced residential homes near the Springs.

Some businesses are also making the move south, Oyler said.

“At the beginning of this year, there is a significant increase in people looking for [office] space,” Oyler said. “I think it’s because companies are coming down from Denver; it blows my mind what the lease rates are in downtown Denver. To put things in perspective, the taxes somebody might pay in downtown Denver could be more than the entire cost they would have in Colorado Springs. The market is certainly improving but lease rates are very low here; they haven’t increased much in 10-15 years.”

Full-service lease rates for Class B office space is about $16, with Class A at $22, Oyler said. Office vacancy rate is at 11 percent, and slowly getting lower.

The industrial market is also expected to continue its gradual improvement, with expected increases in both rental rates and sale prices. Industrial space costs about $8 per square foot.

Oyler said the vacancy rate for industrial space below 20,000 square feet is just 3 percent, but when larger spaces are also considered, the overall vacancy rate rises to 9 percent.

“Most of the demand is in the 10,000-15,000 square foot range, and there just isn’t much out there,” he said. “There is a lot of talk about new construction — all the way across the board — with retail leading the herd. We’ll see how that develops for industrial and office space.”

 

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