Market Data

Mountain Markets Climb

New population growth and low costs boost Western states' fundamentals.

As one of the least populated regions of the country, the Rocky Mountain states’ valuable commercial real estate investments sometimes are overlooked. But as the low cost of living and natural attractions draw more residents west, commercial real estate growth is following. Las Vegas, Colorado Springs, Colo., Teton County, Wyo., and Boise, Idaho, all experienced population increases in the past year. Both Idaho and Nevada were among the top four fastest-growing states, according to the National Federation of Independent Businesses.

Why are people moving to the Rockies? The region is a prime business environment: Inc. magazine named Reno, Nev., the best city for doing business this year and Boise the second best. Salt Lake City moved up 73 spots on the list to No. 31, due to its low business costs.

With steady population growth, it’s not surprising that some of the region’s retail markets are thriving. Las Vegas and Boise are garnering attention, especially from California-based investors. Retail in Denver also is expected to improve throughout the year as several new developments get underway, according to CB Richard Ellis.

New economic factors are creating pockets of growth in the Rocky Mountain region. For example, in Sublette County, Wyo., rising gas and oil prices have caused an influx of natural resource exploration in the area, creating demand for condominium and apartment development.

Office construction in Boise and Las Vegas is keeping pace with the other sectors. And the leasing market is poised for a comeback: Las Vegas’ 1Q05 vacancy rate was down 3 percent from the same time last year. Increasing competition for Boise space is expected to keep rental rates high.

Nevada’s and Colorado’s industrial markets are faring well. Las Vegas vacancy rates have fallen to record levels. Warehouse space more than 50,000 sf fell four percentage points since 2Q04. The Denver industrial market is on the mend from a temporary stall during 4Q04. Absorption of vacant property has been slow, but is predicted to pick up as the year progresses, according to CB Richard Ellis.

The region’s picturesque mountains and outdoor activities make several of its cities popular vacation destinations. Luxurious ski resorts in areas such as Aspen, Colo., Steamboat Springs, Colo., and Jackson Hole, Wyo., keep the region’s hospitality market robust through the winter months.

Las Vegas
Ringing Up Retail

Las Vegas is on course to be one of the top U.S. retail markets in the next three years, according to Marcus & Millichap. Vacancy rates are expected to reach a five-year low and rents reached a five-year high at midyear.

Despite slowing down slightly at the beginning of the year, Las Vegas continues to be one of the fastest-growing metropolitan areas in the country. Employers are expected to add more than 33,000 new jobs this year and approximately 1.5 million sf of new retail space will be complete by year-end.

Retail property sale prices are climbing; the median sale price increased 7.3 percent between midyear 2004 and midyear 2005, to $175 psf. Out-of-state investors, including institutions, are attracted by the city’s strong fundamentals and stable multitenant properties. For instance, General Growth Properties recently purchased the Venetian Hotel’s Grand Canal Shoppes for $1,721 psf or $766 million.

Reno, Nev.
Industrial Comeback

• Most activity in Reno’s industrial market has been in the owner/user sector, spurred on by low interest rates.

• Vacancy rates ended 1Q05 at 8 percent, a decrease from 4Q04’s 9 percent. The rates are expected to continue falling, reaching 7.5 percent by year-end. photo: Venetian Las Vegas

• Northern and eastern Reno are home to large industrial users, mostly in established parks. Industrial land parcels are selling for between $2 and $3 psf.

Sources: NAI 2005 Global Market Report, Society of Industrial and Office Realtors’ 2005 U.S. Industrial Market Review and Outlook, and Miller Industrial Properties

Grand Canal Shoppes at the Venetian Hotel
Salt Lake City

Church Changes City’s Face
Demolishing the Key Bank Tower is just one of the possible ways the Church of Jesus Christ of Latter-day Saints plans to revitalize Salt Lake City’s downtown, according to the Salt Lake Tribune. Attached to the church-owned Crossroads Plaza mall, the building houses 300,000 sf of office space. Tearing it down would mean relocation for a dozen tenants, improving the area’s overall office absorption as these businesses fill existing vacancies.

The church also acquired the Triad Center, another downtown office property, at the close of last year. The building is slated for conversion into an educational facility, further decreasing the city’s office inventory and increasing overall absorption, according to CB Richard Ellis. photo: Salt Lake Convention & Visitors Bureau

Office construction in the metropolitan Salt Lake City area increased significantly by midyear. While the 100,000-sf Quarter River Park III building was completed at the close of 2Q05, more than 650,000 sf of new office space has been completed or remains under construction. In addition, 14 new buildings will break ground over the next few years, adding more than 2 million sf to the market, according to CB Richard Ellis.

Boise, Idaho
Growing Market Attracts Investors

Boise, ranked by Forbes magazine as “one of the best places to live,” continues to grow, as the metropolitan statistical area’s population tops 500,000. The affordable cost of living — about 5 percent lower than the national average — and low business costs also help to make Boise an attractive lifestyle and business destination, according to NAI 2005 Global Market Report.

Boise’s retail market is the strongest sector. Non-mall vacancy rates hit 9.5 percent in January, and kept dropping. Rental rates are on the increase: At midyear the average was $14 psf triple net, according to Western Real Estate Business.

BoDo, a public/private development of downtown Boise’s Eighth Street Marketplace, will be completed this fall. The development includes 135,204 sf of retail space, 53,830 sf of office condominiums, as well as a multiscreen movie theater, entertainment facilities, a hotel, and parking garages. The project is a partnership between BoDo Partners and Capital City Development Corp., Boise’s redevelopment agency. Committed tenants include: PF Chang’s China Bistro, Ann Taylor Loft, Jos. A. Banks Clothiers, Hampton Inn Suites, and the local office of Colliers International.

Regional Multifamily Fundamentals

Source: Colorado Division of Housing, Western Real Estate Business

Montana
Hospitality Lags Behind

While large in area, Montana’s population is inversely small — approximately 930,000 people over 145,552 square miles. Without a nearby population base from which to draw drive-to visitors, the tourist industry suffers, says the Institute for Tourism and Recreation Research at the University of Montana. Other reasons: lack of funds for a state advertising campaign and fewer visitors to Yellowstone National Park.

Denver
Optimistic Office Outlook

As Colorado’s job growth climbs, so does its office market, according to CB Richard Ellis’ 2Q05 Denver office report. A recent Federal Deposit Insurance Corp. study ranked Colorado as one of the top 10 states in job growth, a huge jump from its No. 45 ranking only a year ago.

While initial improvements were slow after the technology meltdown five years ago, 2Q05 saw downtown vacancy rates decrease with moderate absorption. Predictions for long-term improvements in the market are attracting developer interest and several major downtown projects have been proposed, according to CB Richard Ellis.

photo: Denver Metro Convention & Visitors Bureau

Carolyn Bilsky

Area report is written by Carolyn Bilsky, associate editor of Commercial Investment Real Estate. Contact her at (312) 321-4507 or cbilsky@cciminstitute.com.

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