Colorado Springs’ housing market rebounded in 2012, but the same can’t be said for commercial real estate.
Vacancy rates remained historically high late last year for Springs-area commercial buildings, while rents fell, according to a fourth-quarter report by Paul Turner of Turner Commercial Research in Colorado Springs. The report suggests the commercial market has far to go before it recovers from the area’s economic downturn.
The combined vacancy rate for local offices, shopping centers and industrial buildings was 11.9 percent in the fourth quarter, up slightly from 11.6 percent a yearearlier, Turner’s report shows.
For much of the last 15 years, the combined vacancy rate typically was in single digits. After the economy slumped in 2007, the rate climbed into double digits and has been there ever since — reaching as high as 12.9 percent in 2009.
Meanwhile, the combined average asking rent for commercial properties fell to $9.57 per square foot in the fourth quarter, down 1.5 percent from the same period a year earlier, Turner’s report showed. Four years earlier, the average asking rent was nearly $11 per square foot.
“It’s not gotten too much worse,” Turner said of the latest quarter. Still, he predicted that continued uncertainty about federal government policies will cause many businesses and investors to remain on the sidelines.
For example, an agreement by Congress and the Obama administration to avert the so-called fiscal cliff earlier this month delayed action until March 1 on what to do regarding scheduled spending cuts that could affect the Springs’ defense and aeropsace industries.
“Sequestration?” Turner said. “It’s still sitting out there.’
Randy Dowis, a principal with NAI Highland Commercial Group, said many business people and investors were on the sidelines waiting for the outcome of the November election. Then they waited out the fiscal cliff. Now, Dowis said, they’re uncertain what might happen with the debt ceiling and the nation’s ability to borrow money.
“How do plan for the future when the future is so uncertain?” Dowis said. “I think there are a lot of companies, nationally and locally, that are still hoarding cash. They’re not making any capital investments.”
Generally speaking, when employers aren’t hiring, they don’t need as much office space — whether existing leased space or new buildings.
Likewise, if manufacturers have slowed their operations, they and their suppliers don’t necessarily need as much industrial space. Retailers, meanwhile, aren’t apt to add as many stores if they see a stagnant economy.
The problems extend beyond empty offices or vacant storefronts. When vacancies rise and rents fall, commercial property values suffer, which leads to potential foreclosures.
AT A GLANCE:
A look at Colorado Springs-area commercial real estate in the fourth quarter of 2012 shows:
• Offices: The overall vacancy rate was 14.5 percent and the average asking rent was $10.27 per square foot, both almost unchanged from a year earlier. But the vacancy rate for Class A, or top of the line, office space was 21.4 percent in the fourth quarter, compared with 20.2 percent a year earlier. Class A rents averaged $13.47 in the fourth quarter, a 0.5 percent year-over-year decline. Downtown fared better than other areas; its overall vacancy rate was 9 percent, down from 9.8 percent in the fourth quarter of 2011. Downtown rents averaged $11.35 in the most recent quarter, a 1.9 percent drop from a year earlier.
• Shopping centers: The vacancy rate rose to 12.2 percent in the fourth quarter from 11.6 percent a year earlier. Rents averaged $12.34 per square foot, down 3 percent from the fourth quarter of 2011.
• Industrial buildings: The vacancy rate in the fourth quarter was 9.4 percent, up slightly from 9.2 percent a year earlier, while the average rent fell 0.8 percent to $6.12 per square foot.
SOURCE: Turner Commercial Research