Veldman: Outside investors attracted to Northern Colorado

Welcome to the season of annual forecasts, a time when we all attend breakfast, lunch, and dinner events packed with information predicting the economic outlook for Northern Colorado in 2020.  The late and great Albert Einstein dissuaded from futurity stating, “I never think of the future — it comes soon enough.” Einstein may have been wiser than us, but where’s the fun in sitting on the sidelines? In the spirit of the season, Waypoint will join the forecasting party for 2020.

What are the story lines for 2020 and how do they impact commercial real estate? We believe they are as follows:

Outside capital will continue to flow into NoCo

As investors realize the benefits of owning real estate, they are increasing investments and this flood of outside capital will drive sales volume for commercial real estate, raising property value and providing stability for low cap rates in Northern Colorado. According to the private capital data provider Preqin, private equity fundraising reached an all-time high of $151 billion in 2019. In addition, Nareit, the National Association of Real Estate Investment Trusts, noted that publicly traded REITs raised $109 billion in 2019, doubling the amount raised in 2018. As a result, capital will continue to flow into the Northern Colorado market as investors from outside of the area seek investments in our high-growth market and greater yields than what they may see in more primary markets..

High costs will continue to weigh heavy in the market

Elevated construction costs will impede new development in 2020, leading to limited additions of inventory. This lack of inventory, joined with increases in real estate taxes and city fees, will continue to push occupancy costs upward.  Financial pressures related to these costs will continue to stress commercial tenants.

2020 is a landlord’s game

The lack of inventory to meet the demand of this high-growth market means it will continue to be a landlord’s market, to a great extent.

Current vacancy rates in the greater Fort Collins area are as follows:

  • Office — 5.2 percent
  • Industrial — 5.1 percent
  • Retail — 4.9 percent
  • Multi-family — 7.2 percent

Increased owner-users in 2020

High rent rates, paired with low interest rates, will continue to drive owner-user demand for owned real estate.  Tenants will continue to see the benefits of ownership with banks competing with low interest rate loans and long term fixed rates.

Investors will proceed with caution during the presidential election year

According to Southpace properties, fear of the unknown during the presidential election cycle will impact the market temperature nationwide, causing investors to take a “let’s see how this all shakes out approach.” The market may slow down in the months leading up to the election as Investors wait for polling results and potential policy changes.

Continued recycling of restaurant and retail space

Some say it’s the retail apocalypse because of the number of retailers closing up shop. However, if we dig deeper, there’s a noticeable shift in the way retailers are using space. In 2020, retailers will continue to downsize store fronts as they learn to navigate the competition brought on by the expanding online retail economy. Similar to the obstacles retailers face in 2020, restaurant space turnover will continue as owners adjust to a higher demand for take-out and delivery.

As Mr. Einstein asserts, 2021 will arrive soon enough, and we’ll know for certain what the real 2020 story lines were. Between now and then, perhaps the predictions above may aid you in making educated and data driven real estate decisions.

Caroline Veldman is a broker with Waypoint Real Estate of Fort Collins. She can be reached at 970-632-5050.