Local commercial real estate recovery still uncertain in 2013, forecasts suggest

rich.laden@gazette.com

Some segments of local commercial real estate will make strides in 2013, but a full recovery will hinge on improvement of the national economy, job creation and whether looming Department of Defense cuts become a reality, a pair of reports suggests.

Forecasts by Sierra Commercial Real Estate and Quantum Commercial Group, two Colorado Springs brokerages, hedged their bets because nobody knows for sure how outside factors will affect office and industrial vacancies, shopping center construction and commercial rents.

“Clearly, the market can’t quite figure out what it wants to do because it has no idea what the rules are, what the new taxes are going to do to companies’ jobs,” said Dale Wheeler, a Sierra managing director who specializes in land services. But there is a pent-up demand on the part of out-of-town investors looking to buy local properties — a hopeful sign for the market, said Quantum’s Candace Seaton.

According to excerpts of the two brokerages’ forecasts and interviews with brokers Tuesday:

• Jobs creation is especially critical for the office market. When employers add workers, they need more space. But if businesses slump, they stand pat or downsize.

Sierra and Quantum expect office vacancy rates to dip in 2013 after topping 15 percent this year. Both brokerages predict rents will remain flat. Sierra’s Brian Wagner and Randy Miller said they’re seeing signs of leasing interest in the north Interstate 25 corridor and southeast side, respectively.

But Defense Department contractors are major users of office space, especially near the Colorado Springs Airport and Peterson Air Force Base on the city’s southeast side. If federal budget cuts take place under the “fiscal cliff” scenario, they could stall or even cripple gains made by the office market.

“It will affect everyone,” said Quantum President Dale Stamp. “It could be overwhelming.”

• Rents fell, while vacancies climbed the past few years in the industrial market before stabilizing. Vacancies could start to fall in 2013, because prices are right to buy and to lease. Denver’s market is improving, and Colorado Springs typically lags behind Denver by eight to 10 months, said Quantum broker Andy Oyler.

Oil and gas exploration companies, already drilling in unincorporated El Paso County, could help the industrial market if there’s a demand for space on the part of the companies and their suppliers, said Sierra’s Dave Bacon.

• Single-digit vacancy rates at area shopping centers soared to double digits the past few years because of the local and national recessions.

They should decline in 2013, while rents should stabilize. Single-family homebuilding, which drives retail development, has reached a five-year high this year; more home construction next year should boost retail development, the Sierra and Quantum forecasts say.

Newer retail centers will snag most of the retail growth, which will occur in a half-dozen shopping newer centers in the area, said Sierra’s Mark Useman.

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