THE WILD, WILD WEST IS OPEN FOR BUSINESS
Three emerging western markets make steady, but tempered, headway reigning in booming industries, national retailers, and more residents.
Kristin Gunderson Hunt
Spotlight / Regional Outlook
DENVER BUSINESSES NEED OFFICE SPACE, ACCOMPANIED BY AN EDUCATED WORKFORCE WITH HOUSING NEEDS AND CONDITIONS FAVORABLE FOR THE CITY.
With the sluggish economy, people are realizing they get more for their money in these markets,” said Matt Coulam, CPM, property manager for the Boyer Company in Ogden, Utah. “Companies that have done business back east or on the west coast can still have similar office or re- tail space while reducing their costs on rental rates and operating expenses.” In November 2012, the Urban Land Institute and
PricewaterhouseCoopers ranked Denver (14), Salt Lake City (21) and Albuquerque (42) among its list of 51 national markets to watch in the Emerging Market Trends 2013 Report.
Denver is seeing the most traction, becoming a popular technology sub- market, as well as host to bioscience, and wind and solar power companies. Such businesses need office space, accompanied by an educated workforce with housing needs and money to spend at retail centers—making commercial real estate conditions favorable for the city.
Despite such ripe conditions, though, Denver is still in “recovery mode” post recession, said
Tiffany L. Jackson, CPM, Senior Property Manager for a commercial real estate company in Denver. Vacancy rates across all sectors are stable, but looming concerns about the global economy are inhibiting a mass influx of new business or expansions, according to CB Richard Ellis’ Marketview Q3 2012 reports for office and retail sectors.
“We were affected by the overall economy like everyone else,” Jack- son said. “Now, we’re seeing at least some new growth, and definitely more stability from the tenants who are already here. The office market, especially, is stabilizing. Fewer concessions are being offered to ten- ants, and tenants seem more com- mitted to staying in their spaces.”
The office market in Salt Lake City, however, hasn’t been quite as resilient amid the financial uncertainty. Slowed job growth and the addition of new product coming online in the third quarter caused vacancies to trend upward slightly, according to the CBRE Salt Lake City Office Market Marketview Q3 2012 report. Net absorption did remain positive, however, and asking lease rates slightly increased.
The retail sector is seemingly compensating for the office market’s “lackluster” performance, though. According to the Salt Lake City Retail Market Marketview Q2 2012 report, retailers continue to look toUtah, statewide, for expansion and investment opportunities.
One of Utah’s largest open-air shopping centers, Station Park in Farmington—between Ogden and Salt
Lake City—continues to expand, anticipating completion of construction on multiple buildings in 2013 that will house Swedish clothier H&M, Twig’s Bistro, Republic of Couture, Francesca’s Collection Boutique and Charming Charlie.
“Each local city in Utah is re- ally pushing to grow,” Coulam said. “We’ve started getting national tenants we haven’t had in the past. Retailers that have traditionally been in California and Arizona are start- ing to show up.”
Albuquerque, too, is seeing slow and steady improvement in market conditions, particularly the retail sector, according to the CBRE Albuquerque Retail Marketview Q2 2012 report. Net absorption at re- tail centers reached 112,770 square feet in the second quarter, the highest quarterly absorption since the third quarter of 2010. Still, recovery through 2013 is expected to be modest.
The 2013 outlook for Albuquerque’s office market, driven by the government sector, is slightly bleaker, despite declining vacancy rates throughout 2012, according to the CBRE Albuquerque Office Market-
View Q3 2012.
Government accounts for 21 per- cent of all non-farm jobs in the city. Consolidation of government offices and loss of government contracts has negatively impacted absorption and will likely push vacancy to more than 20 percent as two major government tenants exit their leases in 2013, according to the CBRE re- port.
“We didn’t see a lot of fall out from the recession at first,” said Julie Baldridge, CPM, director of property management for Grubb & Ellis, in Albuquerque. “But in the last year we’ve experienced what seems to be a delayed response to the recession with falling rents and tenants downsizing their spaces.”
Across the board, real estate managers in the Western region said they are focused on working with owners to reduce operating costs and improve their properties with low-cost, high-impact projects like pressure washing and painting buildings; improving landscaping; and upgrading properties’ facies to keep them competitive. “Convincing owners to invest in their properties with limited capital can be a challenge,” Jack- son said. “Show them how they can benefit, whether it’s through decreased vacancies or increased rent. Personally, I’ve developed trusting relationships with my owners. I assure them I won’t recommend anything that I wouldn’t do with my own property or money. I have found that owners really appreciate my experience and my opinion.”
While owners might still be hesitant to invest large sums in their properties right now, investors appear to be much less hesitant when it comes to establishing roots out West.
“These cities not only offer a great place to work, but a great place to live as well,” Coulam said. “I believe people are still discovering all that the West has to offer.”
KRISTIN GUNDERSON HUNT IS A CONTRIBUTING WRITER FOR JPM®. IF YOU HAVE QUESTIONS REGARDING THIS ARTICLE OR YOU ARE AN IREM MEMBER INTERESTED IN WRITING FOR JPM®, PLEASE E-MAIL MARIANA TOSCAS AT MTOSCAS@IREM.ORG.