The real-estate market should experience slow but steady growth over the next six months.
That was the consensus of a panel of real-estate experts Tuesday at a National Association of Industrial and Office Properties breakfast at Lakewood’s Belmar Center.
They dissected the metro area’s retail, office, industrial and investment markets.
Retail
About 3 million square feet of new retail space will come on line by the end of the year, said Pat McHenry, a retail broker with Trammell Crow Co.
And while there are fewer projects, they are larger. In the past, “power centers” anchored by big-box retailers such as Wal-Mart ranged from 300,000 to 500,000 square feet. Today, developers are building power centers of up to 1 million square feet.
And more retail sectors are consolidating. With stores such as Home Depot adding gasoline to their inventory, small gasoline retailers are facing the same pressures the grocery industry did when Wal-Mart added food to its shelves, McHenry said.
Office
Downtown is leading the charge in the improving office market, said Doug Bakke, senior vice president at CB Richard Ellis.
Eight tenants that each would occupy a minimum of 20,000 square feet are looking for office space downtown, he said.
Overall, the metro area has experienced positive absorption and increased leasing activity as the economy has improved. Absorption is the net change in square footage leased in the current period compared with a previous period.
But consolidation in the telecommunications industry could have the same effect mergers and acquisitions in technology had last year. When Sun Microsystems announced that it would merge with StorageTek, about 400,000 square feet of office space was put back on the market.
Still, about 1.1 million square feet of office space has been absorbed this year. Among the largest tenants are Dean Foods, with 138,000 square feet; Digital Globe, with 100,000 square feet; McData, with 90,000 square feet; Gambro, with 80,000 square feet; and Forest Oil, with 50,000 square feet.
Bakke predicts developers will start speculative construction of office space by 2009 and that a 10 percent vacancy rate will be achieved by 2010.
Industrial
The industrial sector is expected to stabilize by the end of the year, despite a vacancy rate that has increased to 9.7 percent, said Rick Calhoun, senior managing director of CB Richard Ellis’ Denver office.
As vacancy rates stabilize, Calhoun predicts lease rates will increase gradually from their average of $4.90 a square foot.
About 1 million square feet of industrial space is under construction. Two projects – Park 70 by ProLogis and Denver West Commerce Center by IBC Holding – each account for about a quarter of the space.
Investment
High-equity capital, aggressive debt and improved leasing have translated into record sales volume, and prices demonstrate the demand for investment property, according to Timothy Richey and Mike Winn of Cushman & Wakefield of Colorado Inc.
But investors can expect only about a 5 percent return, and while the market has achieved record prices, there still is room for real estate to appreciate.
Staff writer Margaret Jackson can be reached at 303-820-1473 or mjackson@denverpost.com.
