Don't expect much commercial growth next year

Housing isn't the only segment of local real estate that's been hurt by credit market woes and the national recession; commercial real estate has taken its lumps, too.

Next year will likely be more of the same: an increase in the number of empty offices and storefronts; a slowdown in construction of commercial buildings; declining rents; and a slump in the development of large tracts of land, according to a 2009 forecast released Tuesday by Sierra Commercial Real Estate, a Colorado Springs commercial brokerage.

Commercial real estate is going through a malaise, not a meltdown, said Sierra representatives. New stores, offices and housing areas will continue to be developed in 2009, but at a slower pace, they said. Likewise, Colorado Springs remains a desirable place to live, with thousands of new troops coming to Fort Carson and big-name defense contractors who continue to perform millions of dollars' worth of work for the federal government.

"It will recover," Dale Wheeler, a veteran broker and land investment expert with Sierra, said of commercial real estate. "Colorado Springs still has all those things going for it that brought all of us here from somewhere else."

Based on Sierra's forecast, here's a look at the commercial real estate market for next year:

Offices: Kent Mau, a Sierra office specialist, said vacancy rates this year for Class A, or top-of-the-line properties, along the northern Interstate 25 corridor and in the southeast part of the city near the Colorado Springs Airport have soared beyond 20 percent; a few years ago, they were in the low double digits and single digits. Downtown's Class A vacancy rate is about 10 percent, he said.

Rising vacancy rates reflect employers who have downsized operations; some of those employers include national and regional home builders who closed their Springs offices, along with mortgage and title companies, Mau said. Vacancy rates also have increased because defense contractors Northrop Grumman Corp. and Aerospace Corp., among other large employers, have constructed their own buildings and left behind space they leased.

Don't expect much new construction in 2009; developers and employers probably will hold back until the economy improves, and they're still having difficulty borrowing money in today's tight credit market, he said.

Retail: As fewer homes are built and sold because of the slumping housing market, retailers are thinking twice about adding more space and are delaying projects, said Mark Useman, a Sierra retail specialist.

In 2007, retailers and developers planned nearly 1.4 million square feet of new retail space in the Colorado Springs area. But in 2009, new retail space will total about 751,000 square feet, or about the same as this year.

"Projects don't get out of the ground today unless they're well-leased," Useman said.

"You can't get financing unless it's well-leased. So, tenants are not expanding, they're not doing what we need them to do."

Industrial: The manufacturing sector continues to suffer because of layoffs earlier this decade. More recently, the housing slowdown and lagging retail expansion has meant builders and suppliers needing less warehouse space, said Dave Bacon, a Sierra industrial specialist. The area's industrial vacancy rate of more than 10 percent will remain unchanged during 2009, he said.

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Contact the writer: 636-0228 or rich.laden@gazette.com