February 21, 2010

Hoff & Leigh’s Weekend Market Report
Hoff & Leigh, Inc.
Leasing, Sales, Management, Buyer or Tenant Representation
4445 Northpark Drive, Suite 200
Colorado Springs, CO USA 80907
February 21, 2010

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Tim’s Market Report

Thomas Pain once said, and I paraphrase, “These are the times that try men’s souls.” He said the summer soldier will, in time of crisis, shrink from the service that’s required of his fellows and that “tyranny, like hell, is not easily conquered.” But, he said, “We have this consolation, that the harder the conflict, the more glorious the triumph.”

And in my travels across the city over the course of the past week, I’ve begun to really discover the nature of the conflict. I was, once again, reminded of personal battle after personal battle; personal struggle after personal struggle; jobs lost or in jeopardy; futures and lives hanging in the balance. And in the back of my mind, I kept hearing an echo - the words from The Little River Band “Hang on, help is on the way!”

And I took a call from a local TV Station; they wanted an interview. Said they wanted to know, “Did I really think it was the end of the earth? Are we “at the bottom”? Is there any milk & honey in the forecast?” Those were such big questions, I felt compelled to call on a higher power. You know, like “Who wants to be a millionaire?” So, I called one of the brightest commercial real estate minds in Colorado Springs (Paul Turner) who provided the following, some of which is paraphrased and some of which is quoted:

2009 was the worst in history for the Colorado Springs Commercial Real Estate Market. (Gee, thanks for that!) Over 1.9 million square feet of occupied space was lost. (Ah, Bob - that’s where the tenant moved-out!) The total amount of vacant space jumped to over 10.6 million square feet and the vacancy rate noodled-up to an 18 year high - 13.1%. (Those numbers would be worse if you included 443,180 sf of sublease-space and “for sale only” properties.) And, hidden inside the number is a startling fact – to fill our currently available vacant space we need 25,000 new jobs! If you presume that with each job you get a husband; a wife and at least 1 kid; and maybe 2 dogs or a cat; or a turtle or a bird, that’d be a population gain of 75,000 or nearly a 15% increase in our city’s population and an attendant new, need for garbage cans in the parks.

Turner said, “After experiencing the “worst commercial real estate market in 18 years,” it might be prudent to predict that 2010 will show signs of improvement for the Colorado Springs area. In fact, many economists and real estate experts have already forecast “cautious optimism.” However, assuming that “things can’t get worse” is not a prelude to the beginning of a recovery. The “jobless recovery” being touted by the government portends no good news for commercial real estate.” (Employees fill empty space; no employees; ergo; no recovery for commercial real estate.) Oh, and by the way, the majority of the 2.4 million square feet of total leasing activity recorded in 2009 was negotiated at prices well below published, asking rates.

So, what’s the outlook? If you’re a commercial building owner, surviving 2010 will involve retaining your tenants through aggressive rent reductions; and be aware, other building owner’s aggressive pricing, free-rent and other incentives will lure your tenants away. (And, by-the-way, if you’re not listed with us, be afraid – be very afraid!) Vacancies will increase (the historic high was 15.4% in 1990), and occupancy levels will remain negative. Sales of improved properties will continue their free-fall to historic lows and more banks will continue to become reluctant Landlords. (Anecdotally, and this is something you will want to know - in 2009, the 138 commercial properties that sold, sold at prices that had declined by 25.5% over 2008’s prices; ($85.07 vs. $63.35) per square foot.) Ugh!

It’s most likely that asking prices (rents & sale prices) have yet not dropped far-enough to attract “bottom-feeders” like we saw in the early 1990’s. In 1993, for example, 10.2 million square feet of commercial property sold for an average of $25.00 psf. That’s not a misprint. Conversely, 2006 was an “investors’ year,” where 11.4 million sf sold for $103 psf.

So what’s a mother to do? “Become one with the golf ball, Happy.” The bottom hasn’t been reached. If you own a building, be prudent and do the deal that’s before you; and by the way, be on the lookout for new deals. Remember what Dr. Kochtu taught us at UND, (or, wait, did he? That darn Frenchie Bar! My mind gets so foggy!) “Buy when the blood’s flowing in the streets!” And the blood is about to start flowing. Last week I was told that in the next budget cycle, there will be another city-budget-deficit of nearly $33,000,000.

Folks, these are the times that try men’s souls, but help is on the way.

And if you’re interested in speaking about commercial real estate or my political travels, give me a buzz or email me. I’ve continued on my sojourn through the city bureaucracy and have been learning some very interesting things.

Written from Colorado Springs, Colorado
The Sports & Wellness Capital of America

Sincerely,

TJL
Tim Leigh
719-337-9551
Tim@HoffLeigh.com