‘Savvy’ developers keep commercial market steady

During the late 1990s and early 2000s, when Denver’s commercial vacancies skyrocketed to well over 30 percent, Northern Colorado held steady at 10 to 12 percent. With each passing year, the market continues to brighten in Greeley, Loveland and Fort Collins.

Peter Kelly, broker associate with Everitt Commercial Partners, said Northern Colorado’s saving grace during the lean years was its propensity for smart growth.

“I would say Northern Colorado is a very savvy real estate and development market, as a whole,´ said Kelly. “Not to say Denver isn’t savvy. It’s just different. Our developers are usually well connected with the real estate and brokerage market. They typically have the deal put together on paper before they ever put it together on the ground.”

During the tech-heavy days of the 1990s, Denver developers were building without tenants in place. When the dot-com bust came, the bottom fell out and vacancies skyrocketed.

The Denver market is slowly recovering. The CB Richard Ellis MarketView Report posts vacancy rates for the fourth quarter of 2005 that are still substantially higher than Northern Colorado, but a distant cousin to those darker days of 30 percent-plus. Industrial vacancies stand at 8.5 percent; retail at 6.4 percent, and office at 15.8 percent, the lowest level in four years.

Meanwhile, vacancy rates for Northern Colorado, as posted on Realtec Commercial Real Estate Services Inc.’s Web site, reveal consistently healthy numbers from the third quarter of 2003 through the fourth quarter of 2005.

Fort Collins, in particular, has posted consistent vacancy rates throughout this period. Office vacancies have ranged from 12.5 percent to 13.41 percent; industrial from 5.05 to 4.74, and retail 4.29 to 4.94.

Loveland’s commercial rental market has come on strong in all three categories. Office vacancies have dived from 13 percent to 5 percent since 2003; industrial 6 percent to 2 percent, and retail 4 percent to 1.9 percent.

Loveland’s across-the-board boom can be tied to a variety of factors. The city has seen a steady growth in population, job opportunities and retail centers. Contributing factors include the Centerra master-planned community and the tremendous expansion in industrial development along U.S. Highway 287, and Loveland’s eastern border along Interstate 25. Many of Loveland’s office developers have included leading-edge technology in new developments and upgraded existing buildings.

Greeley offices not so hot

Greeley’s office vacancies, however, have soared, from 13 percent in late 2003 to 20.84 percent in fall 2005.

Carlos Barreras, a broker associate with Re/Max Optimum Group LLC in Greeley, said the discrepancy is likely due to new construction completed ahead of demand in 2003-04.

“We are seeing more interest in west Greeley, as the medical and professional fields are looking to relocate at very reasonable lease and purchase rates,” Barreras said.

Greeley’s industrial and retail rental market has held steady, with industrial vacancies ranging from 8 percent in 2003 to 7.05 in 2005, and retail from 6 percent to 5.79 percent.

According to Kelly, the region’s healthy retail market has provided a financial anchor throughout the lean times.

“In any market, it’s the driver. There’s a demand anywhere people live, and Fort Collins has a high population density,” Kelly said.

Industrial leases also continue to be a healthy market for the region. Dan Eckles, broker/partner for Realtec Commercial Real Estate Services, said he expects industrial lease rates to escalate substantially in the upcoming 24 months.

“(Industrial’s) the tightest market by far, with less than 4 percent. It’s been a good market all along.”

A majority of Northern Colorado’s industrial rentals are used for storage and distribution, with very little expansion in the manufacturing sector.

“There are some industries that are bringing parts in and doing live assembly, but we’re not a heavy manufacturing region,” Eckles said. “We have cabinet shops and the microbreweries and breweries and such, but most of it is used just to store materials until they’re ready to be used in this area.”

Kelly also noted there’s a demand for light-industrial rentals, usually limited to offices with an overhead door. These might be used by such businesses as contractors or boutique-food processors.

Office vacancies are the only slightly sour note for leasing agents, as the trend has swung toward the desire to own office space, rather than rent.

“The demand is in ownership, as people build new facilities for themselves and move into new ones,” Eckles said. “It’s been increasing in recent years but it’s leveling out now. But I still think we’ll see some growth. People will still want to own, rather than rent.”

Kelly said he expects to see office leasing activity pick up later this year.

“The demand for condos, prices and financing has been very advantageous. With interest rates slowly climbing and the prices of these condos, the demands have been changing. I think we’ll see a return to leasing, but still some interest in building to suit specific needs.”