Region’s office vacancy rates high

While some areas in the nation are experiencing a glut of office space — including Denver – Northern Colorado seems to be sitting a bit more comfortably. Still, the region’s market looks good only when compared with the nation’s lackluster performance, and the word stagnant seems to aptly describe Northern Colorado’s office market.

Year-end figures for 2003 show limited absorption and stable leasing rates across the region, with Fort Collins posting a comparatively healthy vacancy rate of just more than 11 percent. Greeley’s rates jumped more than 5 percent from last year — to almost 15 percent — and Loveland shows the highest vacancy rate in Northern Colorado at nearly 17 percent.

“There’s just not a whole lot of office activity,´ said Joe Palieri, broker with Loveland Commercial LLC. “If businesses are growing, their offices are getting more crowded. They’re squeezing people in rather than adding to their office space.”

Several large-footprint vacancies affect the overall vacancy rate, Palieri said. In Loveland, this includes the Colorado Memory Systems building with its 80,000 square feet of vacant space, Center Partners’ 33,500-square-foot void in Centerra, and a redeveloped 24,000-square-foot space available on South Lincoln Avenue near Colorado Highway 402.

“There is a significant amount of large office vacancies, but a lot of the smaller, really nice office space has been leased,” Palieri said. “It’s still difficult to lease five to 10 thousand square feet a pop unless a company is relocating.”

Reason for optimism

But Palieri is optimistic about positive absorption in 2004.

“The retail side has been strong, and industry has been decent, but office space has been kaput for the last several years,” he said. “It’s about time in the cycle for office to ramp up again.”

Large-footprint vacancies vex Greeley’s rates as well, but there are signs of improvement. While Hewlett-Packard’s former 355,000-square-foot behemoth sits empty, the former State Farm site in Evans was purchased in November for $2.85 million by Broomfield-based Colorado & Santa Fe Real Estate.

While the company has yet to secure a tenant, senior leasing associate Julia Crawmer said she’s close to filling the 18,000-square-foot warehouse space and has “serious interest” from several potential office lessees. With a wide range of options for multiple tenants, Crawmer said she expects to have the entire 200,000 square feet of office space filled within four years.

Bernie Blach, managing broker for Realtec Commercial Real Estate Inc.’s Greeley office, said vacancy rates have to be put in perspective. While large vacant buildings cause the rates in Greeley’s outlying areas to hover in the 16 percent range, Blach said the downtown area maintains a vacancy rate of about 9 percent.

“Greeley had a very positive market throughout last year,” Blach said, adding that the recent technology downturn did not hurt Greeley as much as other areas.

Interest rates are key

“As long as interest rates remain where they are, we’ll see continued growth — especially in the smaller-footprint space — and increased absorption in the larger footprints as companies expand,” Blach said.

As Denver’s office vacancy rates slowly shift to positive absorption, Northern Colorado’s market should benefit as well, Blach predicted.

“Denver began to see some positive absorption through the last part of 2003,” he said.

As one of the cheapest metro areas in the country for office space, it is anticipated that Denver’s office vacancy rates will continue to decline throughout 2004.

In Fort Collins, office vacancy rates barely improved from 2002 to 2003, with a decrease of less than a half-percentage point.

“We’re seeing a strengthening in business overall, but that doesn’t translate to businesses needing bigger spaces,´ said Stuart MacMillan, vice president of the Fort Collins-based Everitt Cos. Still, MacMillan said he is seeing steady activity. “Things are looking pretty good,” he said. “We’re showing spaces frequently — let’s just say we’re working hard.”

Lease rates across the region have remained steady. In Fort Collins, the Harmony Road corridor commands the highest rates in the $17-to-$24 gross range. To improve absorption, the market is beginning to offer some incentives, MacMillan said, but nothing like the buyers’ market of the early ’90s.

High vacancy rates have had a chilling effect on speculative projects both across the country and in Northern Colorado.

“There has been some design and approval for commercial property,” MacMillan said, “but that doesn’t mean they’ve been started.”

From a developer’s point of view, a 5 percent vacancy rate is considered a healthy environment for speculative projects, MacMillan said. “Of course, there are always niche markets — even at 12 percent.”

Case in point: Everitt Cos. is developing flex-space and smaller multi-tenant office space in the popular Harmony Road area.

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