CREJ - Office Properties Quarterly - March 2016
Northern Colorado continues to be one of the strongest real estate markets in Colorado. Driving the market is strong job growth in both Larimer and Weld counties. Larimer County added approximately 5,400 jobs in 2015, whereas Weld County added approximately 3,800 jobs, despite the troubles in the energy sector. Looking forward, 2016 promises to be another good year for real estate as professional services, technology, education, agribusiness and health care all are anticipated to expand over the next 18 months. Current office vacancies for all classes of less than 4.5 percent will provide challenges for expanding businesses. Developers with the foresight to begin speculative office construction promise to gain from the supply-demand imbalance. Although there is 520,500 square feet of proposed new office projects, only two developers have begun construction on speculative office space to meet the growing demand. Both speculative office buildings are within McWhinney’s Centerra master-planned community in Loveland. The two projects include Rocky Mountain North developed by Meyer Natural Foods, and Hahns Peak Two developed by McWhinney. These new projects will add 89,000 sf of new office space in Loveland. Compared to the rest of the country, the Northern Colorado office market did not experience a significant downturn during the recession. New speculative development came to a stop and a diversified economy helped keep employment rates and office occupancies relatively stable. Northern Colorado developers have remained conservative since the Great Recession, and it is more likely that the demand for new office space will be satisfied through build-to-suit projects for larger tenants versus speculative office construction. The cost of new office construction has increased by approximately 10 percent per year for the last 24 months, and planned new projects are quoting triple-net rental rates of $21 to $23.50 per rentable sf. A combination of an improving job market and little new supply of office space coming on line will allow landlords to see rental growth. Absorption into 2016 will substantially outpace the new product coming on line. Office employers are struggling to find top talent as the unemployment rate has dropped below 3 percent in Larimer County and below 3.5 percent in Weld County. Savvy employers realize they need to have a quality, distinctive work environment to attract good candidates. Smaller businesses with fewer than 10 employees have few choices and when options for space open up, they need to be prepared to make quick decisions. The same basic forces influence demand for commercial real estate and housing, causing both markets to move together. The population continues to grow as families move to Northern Colorado to capitalize on this strong job market, affordable housing and an active lifestyle. Fort Collins is ranked first among Colorado cities and fourth in the U.S. in the 2015 Gallup-Healthways Well-Being Index. The Group Inc., a market leader in Northern Colorado residential real estate, reports that 10,229 homes sold in 2015 and that four of the top 11 metropolitan areas with the highest rates of house price appreciation in the U.S. were along the Front Range. Fort Collins/Loveland ranked No. 11 nationally with home appreciation of 12.35 percent, and Greeley ranked No. 5 with 13.8 percent appreciation. The Denver MSA ranked No. 8 nationally at 13.49 percent. Fort Collins also ranked No. 2 in the U.S. for the lowest vacancy of available residential properties, at 0.2 percent, according to RealtyTrac data. Home sales in 2015 were only up slightly compared to 2014 and could have been much higher if there would have been available product. Demand was there for an additional 8 percent in sales, according to The Group Inc. Based on all of the metrics in place, Northern Colorado promises to provide opportunities throughout 2016 and the foreseeable future.