Slow leasing expected in 2007

Move over, single-family housing; commercial real estate also might be headed for a downturn.

Conditions won’t be nearly as bad as in the years after the 2001 recession, when local employers laid off about 10,000 workers, downsized operations and sent office and industrial vacancy rates climbing, some local commercial real estate experts say.

Still, leasing of office and industrial buildings will continue during the rest of 2007 at a “subdued pace,” Paul Turner, head of Turner Commercial Research in Colorado Springs, says in his third-quarter report on the local commercial market. Shopping center activity also will cool, he said.

Turner said several signs point to a commercial slowdown. Absorption, or the increase in the amount of commercial space occupied over time, is a key indicator, he said.

By the end of the third quarter of this year, commercial tenants occupied 433,812 more square feet of space than they did at the beginning of the year, Turner said. But over the same period last year, absorption had increased by 2.6 million square feet, he said.

Also vacancy rates for offices, industrial buildings and shopping centers all increased in the third quarter when compared with the same period last year, Turner said.

A slowing economy is one reason for the downturn, Turner said. Businesses need less space for fewer employees when the economy slumps. Re- tailers, meanwhile, build fewer stores and restaurants if there’s a slowdown in home construction.

Also, businesses are tighter with their money and less likely to invest in new space during an economic slowdown, said Dale Stamp, president of Grubb & Ellis/Quantum Commercial Group, a Springs brokerage. He added he expects the slump to last until 2009.

The slumping new-home market — new-home construction in El Paso County is running at its slowest pace since the early 1990s — and the national credit crunch are having ripple effects on commercial real estate, said Randy Dowis, a broker with NAI Highland Commercial Group in Colorado Springs.

Homebuilders need less storage space for equipment and building materials because they’re constructing fewer homes, he said. Real estate investors also face more stringent borrowing requirements, which means they might buy fewer local buildings and pump less money into the Springs economy, Dowis said.

A commercial slowdown typically results in higher vacancy rates for landlords and lower rents for tenants.

This time around, the slowdown probably will lead to stagnant conditions, without big changes in rents or vacancies, said Jim Justus, head of Springs commercial brokerage Olive Real Estate Group.