Commercial real estate’s future looks steady

After years of red-hot growth, get ready for a moderate commercial market that shouldn’t really go up or down much in 2002.

There are four segments in the commercial market — industrial, investment and retail — but it’s the office segment that’s been most influenced by the downturn in the economy.

The worry is there is too much of it to go around. Last year, the vacancy rate for office space in Fort Collins was 5 to 6 percent. That shot up to 12.5 percent at the beginning of 2002. “Overall, it’s the softest of the commercial sectors, but we are seeing some activity,´ said Michael Ehler, commercial broker for The Group.

David Veldman, president of Veldman-Morgan Commercial in Fort Collins, says roughly the same thing: Things aren’t great, but they aren’t really bad, either. “The combination (of the Sept. 11 attacks and the economy) hurt some people, but we don’t have that much vacancy.”

Lease rates going down

Veldman says the total square footage of office space in Fort Collins is 2,000,075,000. Of that, 259,000 square feet is vacant. That’s not great, but it isn’t terrible. Steve Stansfield of Realtec in Fort Collins even goes so far as to say it’s a great time to be a tenant, what with corporate streamlining driving down rates.

Also driving down office rates is the number of buildings coming on line. Veldman can tick off office space at 702 Drake, Miramont and Promontory that can roil an already complicated mix. Some or all of the buildings are preleased. Some are waiting for tenants and some have already been leased.

Veldman’s company, for example, has just leased a 15,000-square-foot building at 772 Whalers Way. Tom Livingston, of Everitt Enterprises in Fort Collins, announced a partnership in the Teraview project, which is a 50,000-square-foot building in Fort Collins in which half is preleased.

The Group’s Ehler says rates for Class A office space should be around $17 to $20 a square foot, with $21 to $22 a square foot for higher-end properties. What should happen? Something of a holding pattern.

Industrial developing outside Fort Collins

Expect most of the development for industrial space to be outside of Fort Collins this year and expect to see much of it to come on line near the Centerra project in Loveland.

It used to be that most industrial space in Fort Collins was near the Fort Collins airport in the industrial park off East Mulberry Street. No longer.

“Most of the property there is dysfunctional,´ said Ehler. “The ceilings aren’t high enough or the dock-high delivery isn’t there.” In a nutshell, Ehler means the existing property is old — good enough for smaller local manufacturers but not the modern space looked for by larger concerns.

If there is a bright spot in Fort Collins, check out the Fort Collins-Loveland Airport midway between the two communities and close to Interstate 25. There is some newer industrial development going on there. Otherwise, Ehler said he is getting most of his industrial reports outside of Fort Collins and expects moderate construction outside the city.

Livingston, on the other hand, thinks industrial will be a soft spot in the commercial economy, even putting that sector at a standstill. He notes that manufacturing has not been doing well and is putting demand for industrial space on hold.

Investment still strong

Veldman says investment property has been traditionally strong in Northern Colorado. “The problem is finding anything for sale that’s reasonable,” he said. He is not talking about apartment houses or condominium buildings, either, because their maintenance costs are unpredictable. He puts anything office-related — and that doesn’t cost a lot of money — in the “reasonable” category.

Ehler is even more explicit. What’s in high demand for investment property is anything that’s preleased and/or producing income with little management. Both men say anything in these categories is hard to find in Northern Colorado. Ehler blames tax law for much of the problem, saying property owners have a fondness for 1031 property exchanges in order to avoid any kind of capital-gains tax.

If Ehler had to compare this market last year with the market this year, he says 2002 should be the same as 2001.

Strong retail center

Fort Collins has become the regional retailer, according to Ehler. In fact, it’s probably the best regional market in the state. That’s good news since the anchor is still the Foothills Fashion Mall in Fort Collins, and that probably won’t change in 2002. Veldman said a picture of Fort Collins would put Old Town next, followed by regional convenience centers such as the Safeway complex at Mulberry and College and neighborhood shopping centers.

Things will probably not stay that way, Ehler said, because development along I-25 — particularly on the interchanges — is the latest trend.

Veldman, Livingston and Ehler said retail development should remain fairly strong in the region. Ehler said most of it should occur where the people are, and probably outside of Fort Collins. He listed west Greeley, Johnstown, Milliken and Windsor as the likely spots. The retail market should probably be equal to or stronger than 2001.

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