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.
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
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
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.
• 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
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.
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
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
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.
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