Retail, office construction at near standstill

FORT COLLINS – The four-story steel skeleton of the Mitchell Block that has risen at the corner of Walnut Street and Mountain Avenue in Fort Collins, plus the new Poudre Valley Hospital medical office building on Lemay Avenue, are exceptions to a rule.

Of all the news items spun from Realtec Commercial Real Estate Services’ annual Market Update forecast at the Fort Collins Marriott on March 12, predictions of a virtual halt in new office and retail construction in Northern Colorado stand out.

The slowdown is also about the most easily understood feature of the commercial real estate landscape this year. After all, a years-long building binge in both the office and retail sectors has resulted in more than 2 million square feet of new construction in each.

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That’s the story line, but as promised in the Business Report Daily on March 13, this column will be devoted to other elements of Realtec’s forecast.

Tenants rule

“If you’re a prospective office tenant, this is the time to make a deal,” Realtec’s Patty Spencer, a downtown Fort Collins specialist, said during her Market Update presentation. With vacancies on the rise during 2008 in every regional market except Loveland, landlord concessions are the rule of the day. Free rent, building upgrades and other enticements are on the table, and office lease rates will continue to slide.

Ditto for retail, with a few twists. A slew of vacant big-box stores, many of them along South College Avenue in Fort Collins, will present opportunities for brokers to lure national credit tenants who have been longing to get into one of the region’s most attractive retail markets. “Absorb, absorb” will be a mantra for the retail specialists.

In downtown Greeley and Loveland, retail property values are hitting new lows, and that might be good news: Risk takers with redevelopment plans might jump into the market, reinvigorating those core districts.

Industrial space awaits

Brokers who specialize in industrial properties are cheering the development of Northern Colorado’s renewable energy segment, with hopes that companies like Abound Solar Inc. and Vestas Wind Systems will continue as catalysts for other companies in the industry. Weld County, from the Great Western Industrial Park that Vestas calls home to the east Greeley site where Leprino Foods will begin to take shape this year, will be a big beneficiary.

While vacancy rates ticked upward during 2008, for example two percentage points in Fort Collins and Loveland and three in Greeley, demand is still strong for certain types of industrial properties, especially high-cube buildings larger than 10,000 square feet.

Apartment deals flourish

If there is a bright spot in the commercial real estate investment world, it is in the realm of multi-family housing. Vacancy rates, after hitting double digits in Fort Collins, Loveland and Greeley five years ago, have shrunk to levels between 5 percent and 6 percent around the region. The best news is that while credit constraints are blocking lots of deals in other commercial sectors, banks seem to be bullish on apartment deals, as the forecast for appreciation stays bright in the sector.

Other investment opportunities – in office, retail and industrial properties – are more scarce. But, as Realtec broker Larry Stroud reminded the Marriott audience, fully occupied buildings with stable tenants and long-term leases are always a good buy. Trouble is, there are fewer of them.

Our forecast: Realtec’s Market Update 2010 will offer a much rosier picture.

Editor Tom Hacker covers real estate for the Northern Colorado Business Report. He can be reached at 970-221-5400, ext. 223 or at thacker@ncbr.com.