Real Estate & Construction  February 16, 2007

Industrial vacancies rise, leases don’t this year

As Northern Colorado tries to jumpstart an industrial economy iced by the technology downturn that began seven years ago, industrial real estate is in closer focus now than it has been since the tech crash.

Across the region, smaller industrial spaces are being snapped up, while larger properties are having trouble finding buyers and tenants.

Smaller spaces that have dock-high delivery, high cube storage and fenced storage are in high demand. But the cavernous buildings that once housed technology giants such as Hewlett-Packard Co. and and Agilent Technologies Inc. are posing more of a challenge.

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For example, buildings that Agilent occupied in Loveland before the company shrunk and vacated them have almost a million square feet available, according to broker Joe Palieri of Chrisland Inc.

But it isn’t partitioned, and until it’s redeveloped it isn’t likely to lease or sell any time soon. Any purchase of that property would be a significantly large investment.

Palieri said the vacancy rates are “a little misleading,” given the high demand from smaller-space industrial users.

“If you look at what’s available on a square-foot basis, it’s a big number,” he said. “In Loveland, there’s a million square feet in three properties. But there’s very little space out there for the 10,000- to 30,000-square-foot users.”

Vacancy rates in the Fort Collins and Loveland markets have each risen about two percentage points in the past year, while Greeley’s has moderated, but just slightly, numbers gathered by Realtec Commercial Real Estate Services show.

Lease rates, though, are the same this year as a year ago in all classes and all markets, according to Realtec’s numbers.

Highway still magnetic

Hot spots for industrial prospects, like retail and office users, are mostly strung along the Interstate 25 corridor.

“A lot of companies are moving out on the highway,” Realtec Broker Dan Eckles said.

One is Abraxis Art Glass & Doors Inc., currently at home in downtown Fort Collins but moving by March to a new, 22,000-square-foot combined shop and showroom on Byrd Drive, fronting the west side of I-25 near the Fort Collins-Loveland Municipal Airport.

Industrial? Yes, but only technically. The glass-and-stone accents on the exterior, and an interior featuring glass floors and stair treads, give the new building elements of higher-end retail space.

But Abraxis owner Bob Leimgruber, whose custom door and glass business and 15 employees will occupy slightly more than half the space, is marketing the remainder for $10 per square foot, triple-net. That’s at the top of the industrial market, but well below prevailing lease rates for new retail space.

“I think something that would be great for this might be a custom cabinet shop, or a high-end window business,” he said. “I’ve had a couple of auto and motorcycle businesses look at it, but I’ve said, ‘No, thanks.'”

Leimgruber’s motivation for moving his shop and showroom after 30 years in downtown Fort Collins is similar to the rationale others offer for wanting to be on I-25.

“The best thing to do is to go where the action is,” he said. “Most of our clientele is out in that direction, so that’s where we want to be.”

Affordable land scarce

Affordable industrial land on the corridor is also becoming a scarce commodity, Palieri said. Raw land that just a few years ago was being marketed for about $2 per square foot is now at least double that price.

“I challenge you to find any industrial land that’s priced anywhere less than $4.50 per square foot,” Palieri said. “The cost of industrial land in this area is rising fast.”

According to Eckles, new industrial construction can cost as much as $75 to $85 per square foot, and lease rates are rising. In fact the cost of construction is much greater than that of buying existing buildings because of permit and land costs.

According to Realtec, speculative construction will be at a low in 2007 because builders would have to command a lease rate above $7 per square foot triple-net to make it feasible.

“Nobody seems to be putting up spec industrial space,´ said Palieri. “But you’ve still got people building warehouse condos.”

As Northern Colorado tries to jumpstart an industrial economy iced by the technology downturn that began seven years ago, industrial real estate is in closer focus now than it has been since the tech crash.

Across the region, smaller industrial spaces are being snapped up, while larger properties are having trouble finding buyers and tenants.

Smaller spaces that have dock-high delivery, high cube storage and fenced storage are in high demand. But the cavernous buildings that once housed technology giants such as Hewlett-Packard Co. and and Agilent Technologies Inc. are posing more of a challenge.

For example, buildings that Agilent occupied in…

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