Commercial Real Estate Update
July 1, 2020
There are, according to CoStar (a primary information exchange of commercial real estate data in our market) approximately 12,644,300 square feet of total commercial real estate (office, industrial warehouse, and retail) in the Niwot, SW Longmont, and Gunbarrel markets. Broken down by category, the square footages look like this:
*Office 2,900,000 sf
*Industrial 5,484,000 sf
*Retail 4,260,300 sf
Of these square footages, current vacancy rates average 12 percent for office space and approximately five percent for both the industrial category and for retail space. As you might expect, vacancy rates here have been low, such as lender interest rates, for years now, since the great recession. Somewhat surprisingly they continue to remain low although the impact from the fall-out of the COVID-19 pandemic is still many months out.
The Gunbarrel, Niwot, and southwest Longmont commercial real estate markets are well positioned to survive an economic downturn due primarily to the fact that they have larger inventories of smaller spaces, specifically industrial space, than other parts of the northwest Denver submarket. Industrial space demand continues to be better than office and especially stronger than retail. Lease rates for industrial space are typically lower and many start-ups and "right sizing" tenants find creative ways to use this type of space.
Having a retail store always has been a challenging way to make a living, but in the past decade the assault on the category from Amazon, Walmart, and Costco has had many people wondering how the small, local stores survive. The answer to that has been the personal attention and customer service that a local provider offers along with the hands-on experience of being able to touch and feel a product before buying it.
That, along with the desire to support a local economy, will be ever critical in the months and years ahead. There is growing recognition of the value that local retailers provide a community that go above and beyond the products and services they provide, including a sense of connection, a feeling of belonging, and mutual support of the people involved in the purchase.
The world of office space is about to experience yet another major transformation in its use. Over the past twenty years, the move to shared, open office space environments has been momentous. As technology allowed for more and more mobility, the advent of open office spaces took off and the need for individual offices declined. Now, however, with the reaction to the pandemic, office workers are going to demand private offices out of their own health concerns. The bigger question will be how companies handle the mobility factors for their work forces and allow more and more of their employees to work from home. This will, of course, be gauged by the resulting production levels.
If one actually believes what they're hearing or seeing in most of the mainstream media, they'd have some reason to think that most of the buildings out there were about to become empty and space would be almost free for users. Nothing could be further from the truth.
While there are some significant changes happening in the world economy, commercial real estate is a local business even with national credit tenants taking some of the spaces. We live in what continues to be a growing economy here in the Left Hand Valley and people will continue to move here from other parts of the country and all over the world. That will help to fill those vacant spaces with rent paying tenants for years to come.
Jim Ditzel, CCIM, is the managing partner of Summit Commercial, a Niwot-based full service commercial real estate office.