FORT COLLINS — Rising lease rates was a common theme across all of Northern Colorado’s commercial real estate sectors, according to CBRE’s newly released first half of 2018 MarketView reports. But while construction is limited in office and industrial, new retail development is actually on the rise, reaching nearly 675,000 square feet underway at the year’s mid-point, already far surpassing 2017’s year-end total.
- Northern Colorado’s retail market experienced healthy growth in key fundamentals such as the average asking lease rate and investment volume during H1 2018.
- Construction activity remained active with 674,696 sq. ft. underway, 87.7 percent of which is preleased.
- Over 649,000 sq. ft. of retail space traded in H1 2018, totaling $106.0 million in transaction volume, which is a 30.2 percent increase from previous half year.
“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. A 65,000-sq.-ft. Urban Air Adventure Park is opening soon at Front Range Village. Club Pilates has opened two locations, and new restaurants like Honolulu Poke Bar are expanding. As housing growth expands, we’ll continue to see more entertainment, services and food follow suit,” said Melissa Moran, vice president with CBRE in Fort Collins.
- Strong activity in Northern Colorado’s office market in the first half of 2018 pushed positive net absorption and increased rental rates.
- At the end of H1 2018, 63,748 sq. ft. of office space was under construction.
- Investment activity in Northern Colorado’s office market reached $39.7 million in H1 2018, with an average price of $108.56 per sq. ft.
“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. 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. Despite these challenges, we are seeing strong demand from office users, especially in the technology, clean energy and medical sectors as well as increased interest from investors who like Northern Colorado’s educated workforce, desirable lifestyle and relative affordability compared to other markets,” said Pete Kelly, Vice President with CBRE in Fort Collins.
- The direct vacancy rate in Northern Colorado’s industrial sector remained low at 4.2 percent, down 70 basis points (bps) from the previous half year.
- Positive net absorption of 231,309 sq. ft. was recorded in H1 2018, a 29.5 percent increase from previous half year.
- The overall direct average asking lease rate increased 12.4 percent year-over-year to $10.07 per sq. ft. triple net (NNN).
- At the end of H1 2018, there was 328,651 sq. ft. of industrial space under construction and 150,730 sq. ft. of new space was delivered so far this year.
- Industrial sales volume reached $66.0 million in H1 2018, a 49.2 percent increase year-over-year.
“Although Northern Colorado has recorded its twelfth-consecutive quarter of positive net absorption, 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. 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 sq. ft. of new industrial space currently under construction is expected to be absorbed quickly. Headwinds to Northern Colorado’s industrial market include rising construction costs, which are the major hurdle limiting new speculative development. We have also seen oil and gas activity slow pending the outcome of Proposition 112 in November’s elections,” said Mike Eyer, vice president with CBRE in Fort Collins.