Pandemic impacts commercial sector, but unevenly – Greeley Tribune
The foreclosure actions affecting two shopping centers in northern Colorado – the Promenade Shops in Centerra and Foothills in Fort Collins – are not indicative of future developments in the area unless you are in the mall business.
Ryan Schaefer, CEO of NAI Affinity commercial real estate agency in Northern Colorado, announced the assessment during a forecast of the commercial real estate market in the area during the BizWest Northern Colorado Real Estate Summit Wednesday morning.
“There will be some (foreclosures) but the percentage will be relatively small,” he replied to a question.
The foreclosures of two of the region’s largest malls in recent months have caught the attention of the commercial market, but as Schaefer noted, the problem is not unique to northern Colorado.
“It’s about demographics. We have too many malls in the US and the ones that suffer the most are too big for their markets, ”he said. Citing the number of households in areas within five miles of shopping malls, he said that most successful shopping malls require high-income households of 15,000 to 20,000 within five miles to be successful. Some have more than 50,000 high-income households in close proximity. Foothills has roughly 10,000 high-income households in the nearby sweet spot, he said.
Schaefer’s solutions are unlikely to be welcomed, he conceded, but could include creating a northern Colorado mall that is centrally located to accommodate the maximum number of people, or demolishing the malls and remodeling them.
He speculated that if McWhinney Real Estate Services Inc. succeeds in purchasing foothills outside of foreclosure, “it will have to reduce gross rental space for retail and increase the density of the roofs around the property.”
“You need a lot of high-income apartments for them to work,” said Schäfer.
Despite the difficulty of retailing in malls, Schäfer said retail sales “exceeded expectations” during the pandemic. He recognized the government incentives and paycheck protection program as a contribution to propping up retail sales and staving off a far worse recession.
Retail sales rose 6.7% in 2020, but online retail sales also rose 21.9%, he said. “The bad news is that a greater proportion [of shopping] happens online. “
Categories like home improvement and grocery did well during the pandemic, but other categories like department stores and fashion declined. He predicted that there would be little new brick and mortar retail in the region in the coming months, with the exception of restaurants and what he called “everyday retail” such as convenience stores.
Another commercial real estate sector hit harder by the pandemic was office space, where transactions declined 46.9% nationwide as office tenants sent their employees home. Office real estate was negatively absorbed in Denver, Larimer Counties, and Weld Counties. Denver has cleared 4.6 million square feet, Weld County 108,000 square feet, and Larimer County 244,000 square feet.
Schäfer said the pandemic taught employers that productivity isn’t necessarily impacted by employees doing their jobs from home. However, they found that training and collaboration had suffered as a result. However, companies approach what they have learned differently. Citing two major national employers, Schäfer said Facebook plans to allow workers to work from home “forever” while Google has announced massive new office building projects across the country.
With a rough estimate of how many workers could leave the community offices permanently, Schäfer said that if companies reduce office space by as much as 10%, it means that the available office space will be 16 times the amount of new office space delivered in 2019.
In any case, given that its calculation does not take into account population growth and real estate obsolescence, the market will definitely have many years of space to be absorbed before it makes sense to build additional real estate.
“I think it might only be five years, but there will be fewer new offices up and running in the next few years,” he said.
Industrial property absorption rates have increased in Weld County and Denver, but decreased in Larimer, Schäfer said. The vacancy rates for industrial properties in the three statistical conurbations he named were between 4.7% and 6.5%.
While several industrial property developers have announced plans or initiated projects in the area, Schaefer believes that the differences between developments reduce direct competition that might otherwise be the case.
“We don’t know how much our market can absorb,” he said. “It is very likely that we can take in more than is delivered. The question is ‘how much more?’ ”
© 2021 BizWest Media LLC