Colorado Real Estate Journal - January 6, 2016
Northern Colorado commercial real estate occupancies are tight, and rent growth in most cases will be steady through the new year. “We’ve had steady growth, and for the most part, we think that these statistics are going to stay basically the same,” CoStar Group’s Charles Shapiro said at the Colorado State University Everitt Center for Real Estate’s 2016 forecast in Loveland. Speaking to Fort Collins-Loveland’s 4.68 percent office vacancy rate, Shapiro said, “You look at the major markets around the country for office vacancy rates, you’re going to see 12 percent – Denver, 14 percent – and those are actually pretty good vacancy rates. Here, we’re seeing very little. This is full employment.” The average office rental rate of $21.76 per square foot gross should tick up to $22.50 in 2016 as vacancy rates fall to the mid-3 percent range, Shapiro said. CoStar projects the Fort Collins-Loveland retail market will see even stronger rental rate growth, rising from $15.10 to $16 per sf triple net, partly because of new product being delivered – including 644,000 sf at Fort Collins’ Foothills mall. The two cities currently have a combined 4.93 percent vacancy rate, which is expected to decrease in 2016. Forecast panelist Steve Kawulok of SVN/Denver Commercial Real Estate said the mall is bringing in restaurants that are new to the market, and existing restaurants and retailers likely will be impacted. “I think in the short term, as a lot of these stores reopen or open in the market, it will have a slight drag on some of the retailers until the population catches up. I don’t see it as anything drastic, but I think the competition will be felt along the College (Avenue) corridor and the other shopping locations,” he said. In the industrial sector, Fort Collins-Loveland has only 2.3 percent vacancy, and CoStar predicts rental rates will climb from $7.78 to $8.25 per sf triple net this year. CBRE’s Kyle Lundy said a lack of concrete tilt-up construction, coupled with strong demand for quality space, make McWhinney’s development of an 83,890-sf speculative building at Centerra in Loveland a “good strategic play.” Greeley, the area most impacted by the energy industry, continues to see very low vacancy, 1.43 percent. Rental rates average $8.63 per sf and are expected to move to $9 per sf this year. The city’s office vacancy is just over 5 percent. CoStar predicts a modest decline this year. The average rental rate should increase from $16.36 to $17 per sf. Greeley retail, according to panelist Nathan Klein of Loveland Commercial, is a study in contrasts. Space in and around the Centerplace shopping area is commanding rents in the high $20s to low $30s per sf triple net, while rates within a mile in any direction tend to be in the teens. “There’s a huge, huge gap in the market between what’s exciting and what’s not,” Klein said. CoStar forecasts Greeley's vacancy rate will decrease from 2.21 to 2 percent this year, with rates increasing from $11.09 to $11.30 per sf triple net. “Apartments through the region are on a roll,” said Shapiro, who noted the apartment market has performed “incredibly well” throughout Colorado’s Front Range. “We’re going to see some challenges in Denver at the top of the market, but up here, we think it’s going to be a great market,” said Shapiro. Fort Collins’ apartment vacancy rate should continue to decrease from 5.22 to 5 percent, with the average monthly rent for properties with 50 or more units increasing from $1,175 to $1,235. Loveland, with 6.63 percent vacancy, will see its vacancy rate increase from 7.07 to about 10.5 percent in 2016 as new product comes to market, but vacancies should decline thereafter, CoStar expects. Loveland’s average rental rate is $1,270.80, higher than that in Fort Collins due to newer product. It will continue to increase this year, to approximately $1,325. Greeley, meanwhile, has a vacancy of only 1.53 percent and lower average monthly rent, $922.54. CoStar thinks that number will increase to $965 this year, with vacancies remaining low. Some new product is being delivered, and some developers are weighing whether to build, given uncertainty in the oil and gas industry, Shapiro said. Also at the forecast event, Dr. Eric Holsapple, chairman of the CSU Real Estate Council and former Everitt Center director, outlined a number of risks, opportunities and game changers for Northern Colorado commercial real estate this year. Among the risks were the time and cost of construction, lack of available product, oil and gas impacts and the general economic cycle. “I think 2016 represents a significant turning point where we’re not going to see vacancy rates spike or anything like that, because there’s still a lot of oil in the Wattenberg Field that needs to be extracted and sold … but it’s going to be a rocky road for the next couple of years,” said panelist Jon Vaughan of Foster Valuation. The Everitt Center forecast also included an in-depth residential forecast by John Covert of MetroStudy, along with a panel of industry experts. Weld County saw a 40 percent increase in housing starts over the last year, the second-highest number of starts along the Front Range, and smaller communities such as Johnstown-Milliken, Erie-Frederick and Wellington are seeing healthy activity due to lower prices and greater availability of finished lots. According to MetroStudy, the median price for a single-family detached home in Fort Collins-Timnath is $325,000, and that is projected to grow to $350,000 this year. Loveland-Berthoud has a median price of $313,000, which MetroStudy believes will increase to $335,000, and the median home price in Greeley-Evans is expected to rise from $265,000, $285,000. Other News Rhonda and Stanley Wells purchased a 10,059-square foot industrial building at 565 Logistics Way in Windsor for $124 million, or $124.27 per square foot. The property sold at a 7.25 percent cap rate. The sellers were Frank and Lynn Pinteric of Waterjet Wonders, which creates marble and porcelain floor tile medallions and borders. They leased back the building from the new owners. Annah Moore of Realtec Commercial Real Estate Services, who represented the sellers in the transaction, said the building is quality, concrete tilt-up construction with a “really nice showroom.” “It was a good example of the demand we have for leased investment properties,” she said, “This was a quality building in a good location with a solid tenant. There is certainly demand for more properties like this that have a lease in place.” Larry Hawe of SVN/Denver Commercial represented the buyers. Pawnee Leasing Corp., a business equipment leasing company, signed a lease for 11,372 sf of office space at 3801 Automation Way, Suite 207, in Fort Collins. “They had outgrown their current building, and there were no viable options for expansion there,” said Annah Moore of Realtec Commercial, who represented the tenant. Peter Kast and Peter Kelley of CBRE represented the landlord, HEO LLC. The Perfect Setting leased 4,567 sf of retail space at 650 E. 29th St. in Loveland. Julius Tabert of CBRE Inc. represented the tenant. He and Cobey Wessof SVN/Denver Commercial represented the landlord, BH 29th St. LLC.