Low vacancy, high construction costs keep NoCo commercial real estate rents up

FORT COLLINS —  Increasing construction costs in Northern Colorado slowed development of office buildings and industrial sites in the first half of 2018 but retail development remained strong, according to new CBRE report.

CBRE’s mid-year 2018 MarketView also found that those rising construction costs combined with low vacancy rates to elevate rental rates for all types of commercial real estate.

Retail

SPONSORED CONTENT

The many benefits of simple, coordinated healthcare

Kaiser Permanente combines health care and coverage in one connected system to maximize employee health and minimize employer costs.

The retail sector in Larimer and Weld counties had growth in both lease rates and investment volume during the first six months of 2018.

More than 649,000 square feet of retail space — a total of $106 million in transaction volume — traded in the first half of this year. That’s up more than 30 percent from the last half of 2017, according to the report.

Nearly 675,000 square feet of retail construction activity was underway during the first six months of 2018, 87.7 percent of which is released.

“Northern Colorado’s retail scene continues to shine brightly in spite of national headlines. Merchants have figured out what resonates with our community — fitness, food and fun are the hot categories in the retail sector, and there’s plenty of opportunity for more,” Melissa Moran, vice president with CBRE in Fort Collins, said in a prepared statement that accompanied the report.

Office

Low vacancy rates and high construction costs made office space in Northern Colorado more expensive for companies to rent.

At the end of the first half of 2018, 63,748 square feet of office space was under construction, with an average sales price of $108.56 per square foot, according to CBRE’s MarketView

“Northern Colorado’s office market is facing a couple strong headwinds. The vacancy rate remained at an all-time low in the first half of the year, and rising construction costs are inhibiting new development,” Pete Kelly, vice president with CBRE in Fort Collins, said in a statement. This results in rising lease rates and limited options for companies looking to move or expand, forcing them to get creative in how they maximize their current space.

Industrial

Lease rates on industrial real estate pushed upward in the first half of 2018. The overall direct average asking lease rate increased 12.4 percent year-over-year to just over $10 per square foot.

At the end of the half, there were 328,651 square feet of industrial space under construction and 150,730 square feet of new space already delivered, according to CBRE’s report.

Industrial sales volume reached $66.0 million, a 49.2 percent increase year-over-year.

Mike Eyer, vice president with CBRE in Fort Collins, said in a statement that during the half “industrial leasing activity has actually been a little soft, due primarily to supply constraints and increasing lease rates.”

“Those factors have also given landlords and sellers tremendous leverage in negotiating deals,” he said. “The good news is there is pent-up demand, so buildings that are functional and well-located will continue to perform well and the over 300,000 square feet of new industrial space currently under construction is expected to be absorbed quickly.”