CREJ - Retail Properties Quarterly - February 2016
The Northern Colorado commercial real estate markets have experienced remarkable growth over the past decade. Fort Collins-Loveland and the Greeley metro market combined added over 3,600 jobs to the local economy during the past 12 months, led primarily by strong growth in the professional and business services industry, which added over 1,100 jobs. Despite the decline in the oil sector, vacancy remains tight throughout all product types with average asking rates increasing during the last quarter in office and retail product types. Retail occupancy levels rose a fair amount in 2015, with net absorption increasing to 96,604 square feet and occupancy levels to approximately 96 percent. Vacancy rates continue to decline, reaching their lowest level since prior to the Great Recession, hovering around 4.5 percent throughout Fort Collins, Loveland and Greeley. This is well below the historical five-year average of 6.2 percent. Northern Colorado experienced a surge in new construction prices due to a shortage of quality subcontractors and tradesmen and an increased appetite for development. During the recession, construction jobs were eliminated, leaving many with no option but to take other career paths. We have seen a rise in the demand for new construction projects, predominantly in the multifamily sector but retail and office developers also are dusting off projects and looking to move those forward. The big question is whether developers can justify their projects with the increased construction costs. On the retail investment front, the net-lease sector noticed a significant cap rate compression over the course of 2015. Triple-net retail properties registered lower cap rates across all submarkets in Northern Colorado. The competition for quality assets pushed closing prices higher, especially for the most coveted properties, which include bank branches, pharmacies and national food chains. Another variable of cap rate compression is the low-interest-rate environment. A low interest rate coupled with increasing demand to place funds, whether it is from a 1031 exchange, private or institutional investors’ interest, or increased demand for quality assets. Buyers are getting into bidding wars for these types of assets, sometimes seeing multiple offers once listed. It became a sellers’ market. The redevelopment of the Foothills Mall by Alberta Development and Walton Street Capital proved to be a catalyst project in Fort Collins. The $320 million redevelopment of the mall is in the final stages of completion and is attracting new tenants to our region, such as H&M and Nordstrom Rack. In addition, Woodward Governor is in the final stages of completing its new corporate headquarters near Old Town Fort Collins at the former Link N’ Greens golf course. Bohemian Cos., in a partnership with Sage Hospitality and McWhinney, is in the final stages of planning before it breaks ground on a 165-room, 85,000-sf luxury hotel in Old Town Fort Collins. In June 2015 a developer announced an 830,000-sf retail center to be built at Interstate 25 and U.S. 34 in Johnstown, anchored by a giant Scheels sporting goods store. The North Dakota retailer plans to open a 250,000-sf “retail shopping adventure” that will be the second-largest sporting goods store in the country. In addition, we cannot forget to mention the investment that Colorado State University is making for its new on-campus football stadium and new on-campus facilities. We continue to see the rise in exposure as being one of the top places to live in America. Northern Colorado has a bright future. With the population increasing, we’ll see strong demand in the retail sector. With a strong education base at universities such as CSU and University of Northern Colorado, as well as a strong primary employment, we are going to see commercial real estate values and rents continue to increase.