NORTHERN COLORADO MARKET OUTLOOK 2014€¦ · the lowest unemployment rate in the Front Range in...

1 | NORTHERN COLORADO MARKET OUTLOOK 2014 © 2014, CBRE, Inc.

NORTHERN COLORADOMARKET OUTLOOK 2014


TABLE OFCONTENTS

INTRODUCTIONMessage from Ray Pittman, Senior Managing Director ........... 3

ECONOMIC OVERVIEWEconomic Overview ............................................................... 5 Macroeconomic Growth .........................................................5 Tailwinds ...............................................................................5 Headwinds ............................................................................6 Well-Positioned for Growth .....................................................6 Northern Colorado Economic Brief .........................................7 Larimer County Highlight .......................................................8 Weld County Highlight ..........................................................8

NORTHERN COLORADO OUTLOOK BY PROPERTY TYPEOffice ................................................................................. 11 Vacancy/Absorption .............................................................11 Lease Rates .........................................................................12 Deliveries and Construction ..................................................12 Key Investment Deals ...........................................................13 Q42013OfficeSubmarketDetail ........................................14

Industrial ............................................................................ 15 Vacancy/Absorption .............................................................15 Lease Rates .........................................................................16 Deliveries and Construction ..................................................16 Key Investment Deals ...........................................................17 Q42013IndustrialSubmarketDetail ....................................18

Retail .................................................................................. 19 Vacancy/Absorption .............................................................20 Lease Rates .........................................................................20 Deliveries and Construction ..................................................20 Key Investment Deals ...........................................................21 Q42013RetailSubmarketDetail .........................................22

Land ................................................................................... 23

Multi-Family ........................................................................ 24

CORPORATE OVERVIEW NorthernColoradoOffice ....................................................27

SERVICE LINES ServiceLines ........................................................................29


INTRODUCTION

MESSAGE FROM RAY PITTMANSENIOR MANAGING DIRECTORCBREispleasedtopresentour2014MarketOutlookreportforNorthernColorado.Aswelooktowardtheyearahead,wecontinuetohavegreatconfidenceintheColorado region, including theoutlook for thelocaleconomyandcommercialmarkets.In2013,wesawimprovingmarketconditionsforallproducttypes

and anticipate further improvements this year driven by the healthcare, technology and energy sectors. Both construction and investment activity wassolidin2013asinvestors,developersandtenantsalikecontinuetobe attracted to the area and expect to see positive long-term results in thefuture.Localrealestateinventoryfulfillstherequirementsofnearlyeverycompany,andfirmscanchoosefromdowntownofficebuildings,suburban business parks, warehouses or manufacturing buildings.Companies in every sector benefit from competitive lease rates andample purchase opportunities, and employers can selectively identify optimallandsitesorexistingbuildingsbasedontheirspecificneeds.

CBRE is widely recognized as the global authority on commercial real estate researchandanalysis. Thanks to the leadershipof ourmanyoutstandingBrokerageandResearchprofessionalsinColorado,weareproudtoofferin-depthmarketresearch,strategicanalysisandleading-edge implementation programs that enable clients to make highlyinformed real estate decisions, reduce costs, create value and improve performance.Asalways,we thankallofour valuedclientsand lookforwardtoworkingwithyouthroughouttheColoradoregionforyearsto come.

Q4 2013 OFFICE MARKET

13.7millionsq.ft. NRA

6.9% Total Vacancy

$17.98 AverageAskingLeaseRate(FSG)

112,068sq.ft. 2013 Net Absorption

53,000sq.ft. Q4 2013 Under Construction

Q4 2013 INDUSTRIAL MARKET


8.2% Total Vacancy

$6.97 AverageAskingLeaseRate(NNN)



Q4 2013 RETAIL MARKET


5.5% Total Vacancy

$12.59 AverageAskingLeaseRate(NNN)




ECONOMICOVERVIEW


ECONOMIC OVERVIEWThe outlook for the national economy is largely positive in the nearterm, and similarly for Colorado’s Front Range markets. The lengthand strength of the remaining expansion period will hinge on several factors,includingU.S.energyproduction,internationaleconomiesandfederalgovernment influences.Because realestatemarketcyclesareinherently related to macroeconomic cycles, it is worthwhile to examine the national and local trends that help shape our commercial real estate marketoutlookforNorthernColorado.

MACROECONOMIC GROWTHThe slow and steady economic expansion since mid-2009 posted annual GDP growth of between 1.8% and 2.8%, a modest pace compared to decennial averages dating back to the 1940s. Recentindicators, however, suggest momentum might be increasing. Not only did the economy seemingly weather the October federal government shutdown reasonably well, we also saw the fastest annualized pace of GDP growth in Q3 2013 of 4.1%, the fastest pace since Q4 2011, and advance estimates for Q4 growth of 3.2%. The Q3 2013 momentum boost came from consumer and business spending and the government shutdownlikelyslowedtheQ42013paceofgrowth.

The current economic expansion has lasted 54 months since the Great Recession ended compared to the previous economic expansion which lasted73months(November2001toDecember2007).SinceWWII,theU.S.economyhascycled11timeswithexpansionperiodsaveraging58 months; however, the past three expansion periods since 1990 averaged 95 months. If we applied 95 months to our current cycle, the current economic expansion would end in May 2017, providing 40 more months of economic prosperity.

TAILWINDSStockmarket indices soared to record levels in 2013 andU.S. energyindependence is possible in the next two decades due to technological advances in the recovery of shale oil and gas. Pent up business spending and investment appears to be supporting new company ventures and expansions. There also appears to be reduced uncertainly surrounding Europe’s austerity measures and indications of a stable, slow recovery across the pond.

Employment markets in the U.S. improved throughout 2013, althoughthe labor force participation rate is still historically low at 63.0%. National unemployment decreased to 6.7% in December, the lowest monthly rate inoverfiveyears,andemploymentgrew1.6%in2013,whichwasdownslightly from 1.7% in the year prior.

ECONOMICOVERVIEW

Chart 1: GDP Year Over Year Percentage Change

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Gross Domestic Product vs. Gross Metro Product: Year over Year Change

Colorado Springs, CO Fort Collins, CO Boulder, CO Denver, CO US GDP

Source: Moody’s Analytics, U.S. Bureau of Economic Analysis


Healthyresidentialmarketsareessentialtooveralleconomicrecoveryandastrongindicatoroftheexpansioncycle’smomentum.ExistingU.S.homesaleshita four-yearpeak inAugustbuthavesinceweakened.November existing home sales were down 1.2% from the same month lastyear,markingthefirsttimein29monthsthatsalesweredownonayear-over-year basis. Median sale prices, on the other hand, appreciated 9.4% over the same period to $207,300. The National Association of Realtors(NAR)creditsrisingmortgageratesfortherecentslowdowninhome sales. Residential building permits were up 19.2% year-to-date throughNovemberatthenationallevel,accordingtotheU.S.CensusBureau.Lookforslowingresidentialsalesduetoincreasingmortgagerates while home prices continue to climb this year.

HEADWINDSThe federal government notably impacted economic activity in 2013 by way of the October federal government shutdown, debt ceiling crisis and sweeping healthcare policy changes. In terms of monetary policy, theFederalReservehintedattaperingitsquantitativeeasingpolicylastsummer, causinganegativebacklash in the financialmarketsandaspikeininterestrates.However,byDecember2013,thereactiontotheFederalOpenMarketCommittee’sannouncementthat“tapering”willbegininJanuary2014wasmetwithgeneralmarketacceptance.Undernew Federal Reserve Chairman Janet Yellen, the pace of tapering is expected to be moderate but will ultimately result in modestly rising interest rates in the long term. WELL-POSITIONED FOR GROWTHColorado’s Front Range appears to be well-poised to capitalize on future economic growth. The Front Range’s diverse industry base that also includes energy and natural resources will help facilitate higher than average employment growth and lower than average unemployment, particularlyastheU.S.seeksenergyindependence.Theregion’shighly-educated population and relatively low cost of living and doing business continuetosupporteconomicgrowth.Coloradoisalsothefifthmost-desirable state to live in, according to a poll by Harris Interactive. Colorado’s population increased 4.8% or by 839,738 people between April1,2010andJuly1,2013. OnlyNorthDakota, theDistrictofColumbia, Texas and Utah posted stronger population growth. National population growth over the same period registered 2.4%, according to theU.S.CensusBureau.

ECONOMICOVERVIEW


NORTHERN COLORADO ECONOMIC BRIEFThe Northern Colorado region, consisting of Larimer and Weld counties, has experienced a solid and stable recovery following the 2008 economic downturn. For the past decade, Northern Colorado has posted higher than average population growth, lower than average unemployment and stronger employment growth fueled by the technology, healthcare and energy sectors. The region’s largest employers include Colorado State University, the University of Colorado Health, Hewlett PackardTechnology, Center Partners, Woodward Governor Company, McKee MedicalCenter,JBSSwiftandCompany,BannerHealthandVestas.

Average annual population growth in Northern Colorado was nearly three times that of theU.S. between 2000 and 2010. In 2012, theregiongrew1.9%comparedto0.7%intheU.S.Theregionreportedthe lowest unemployment rate in the Front Range in recent years, including last year. Northern Colorado unemployment stood at 5.5% as of November 2013, which is considerably lower than in 2010 when unemploymentwasat8.6%.Acloserlookrevealsa5.0%unemploymentrate in Larimer County and a 6.3% unemployment rate in Weld County in November 2013, compared to 5.7% for the Denver metro and 6.6% at the national level.

Total employment in Northern Colorado grew 2.0% in 2013 compared to2.6% in theDenvermetroand1.6% for theU.S. Lookingahead,Northern Colorado is well-positioned for continued growth in 2014 and will once again exceed national averages.

ECONOMICOVERVIEW

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Colorado Net Migration vs. Ft. Collins Unemployment

Colorado Net Migration Unemployment %: Ft. Collins

Chart 2: Colorado Net Migration vs. Ft. Collins Unemployment

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Chart 3: Annual Employment Growth by Region

Source: U.S. Bureau of Labor Statistics, Moody’s Analytics

Source: U.S. Bureau of Labor Statistics


LARIMER COUNTY HIGHLIGHTIn Larimer County, professional and business services, health services and technology industries have led job creation over the past eighteen months. Nine Northern Colorado-based companies were featured on the 2013 Inc.’s 5000 Fastest Growing companies list, including four each from Loveland and Fort Collins. For example, Madwire, a full-servicedigitalmarketingfirmbasedinLoveland,placed51stonthelisthaving grown by 5,254% over a three-year period. In addition, OtterBox, whichhasmorethandoubleditsworkforceinthelastfewyears,placed416thhavingbenefittedfromtheboominhandheldmobiledevices.

Technology jobs have been important to the economic foundation in Larimer County, particularly Fort Collins, for several years. However, maturetechnologycompanieslikeHewlettPackardarenotdrivingjobgrowth in Northern Colorado. Instead, companies such as Woodward Inc., a designer and manufacturer of hydro-mechanical and electronic fuel controls, are driving growth as they become an integral player in the nation’s high tech sector. This shift towards advanced and environmental technology jobs stemming from bioscience and agriculture helped Fort Collins earn the number two ranking on the Kauffman Foundation’s2013metropolitanHigh-TechStartupDensity list, behind first rankedBoulderandaheadofsixthrankedDenver.

Given the region’s thriving business climate, low cost of doing business andwell-educatedworkface,itcomesasnosurprisethatForbesrankedFort Collins as the seventh Best Place for Business and Careers in 2013, placing just behind Denver.

WELD COUNTY HIGHLIGHTWeld County is largely agricultural, with approximately 75.0% of its 2.5 millionacresdevotedtofarmingandlivestockuses,andisconsideredtobetheeighthlargestagriculturalcountyintheU.S.RecentjobgrowthinWeldCountyhasbeeninfluencedbytheresurgenceofoilandgasexploration and development coupled with the expansion of the food processing sector. On account of record oil production in Northern Colorado,energycompaniesarespendingsignificantamountsonjobcreationandfacilityexpansions.Forexample,Anadarko,whichinvestedapproximately $1.5 billion in Northern Colorado in 2013, recently completed a50,000 sq. ft. building in Platteville after outgrowing itsBrighton facility. Noble Energy, which is estimated to have invested $1.7 billion last year in the Denver-Julesburg Basin, will increase its regional investmentto$2.0billionthisyear,includingplanstosignificantlyexpandits66,000sq.ft.headquartersinGreeley.Intermsoffoodprocessing,LeprinoFoods,theworld’slargestmakerofmozzarellacheese,isnearingcompletionof its900,000sq. ft.cheeseandwhey facility inGreeley,makingitoneofthecompany’slargestproductionfacilities.

ECONOMICOVERVIEW

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2013 Average Non-Farm Employment by IndustryChart 4: 2013 Employment by Industry for Northern Colorado

Source: U.S. Bureau of Labor Statistics


The region’s economic momentum was temporarily slowed last year by the Septemberfloodingevent.TheconsiderableamountofrainfallinNorthernColorado and the Denver metro claimed eight lives, damaged 1,500 homes and caused an estimated $475.0 million in roadway damage. Themanyhomeownersnotcoveredbyflood insurancewere forced toallocate resources to home repairs instead of starting new businesses or purchasing consumer goods. This is especially true in Weld County wherehousinglossrankedsecondonlytoBoulderCounty.Considerabledamage to oil well facilities and crops also occurred. As a gateway community tothehighcountry,Lovelandinparticular,will likelyrecorddecreasedtourismrevenuelastyearfromtheboththeclosureofRockyMountainNationalParkandlimitedaccesstoEstesPark.Albeitashorttermsetback,theregionmayseeweakernetmigrationifevacueesdonotreturntothearea.Still,thenegativeimpactsarelargelytemporaryandwill provide limited stimulation to a handful of industries as homeowners andbusinessesmakenecessaryrepairs.Thelocaleconomycanexpecta stimulus in industries related to water treatment and management and residential and commercial construction.

ECONOMICOVERVIEW

Chart 5: Northern Colorado Residential Building Permits

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NORTHERN COLORADO OUTLOOKBY PROPERTY TYPE


NORTHERN COLORADO OUTLOOKBY PROPERTY TYPE | OFFICE

OFFICETheNorthernColoradoofficemarketrecordedmodestimprovementsin recent years but momentum is gaining as the region’s economy strengthens. The minimal level of activity noted in recent years accelerated in 2013 to achieve more notable improvements. In 2013, vacancy rates decreased on account of the limited product available coupled with theinfluxofhealthandwellnessandtechnologycompaniesexpandingin the region. Despite increased demand, rental rates were stable throughout the year. Although vacancy rates are at low levels, rental ratesarestilltoolowtowarrantsignificantspeculativeconstruction.

VACANCY/ABSORPTIONThe overall office market vacancy rate has steadily declined sincepeakingat10.4% inQ12011.Healthy leasingactivityhelpedpushvacancy rates down 80 basis points from 7.5% in Q4 2012 to 6.7% inQ42013,marketingthelowestlevelpostedsincetheendof2007.Vacancy rates are declining across all class types, however the Class A segment is particularly tight with a Q4 2013 vacancy rate of 3.8%, down from 5.1% a year earlier. Net absorption has been positive since 2010endinglastyearwithapproximately112,068sq.ft.ofabsorbed.Lookingahead,vacancyrateswilllikelycontinuetodeclineuntilleaserates are high enough to support new construction and absorption will continue to be positive on account of limited available product and sustained demand.

Chart 6: Vacancy Rate vs. Lease Rate

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Source: CBRE Research, Q4 2013


LEASE RATES Northern Colorado lease rates have been relatively stable over the past twoyears.AfteraslightuptickwasrecordedinQ32013,averageratesdippedbackdownto$17.98persq.ft.fullservicegross(FSG)inQ42013, and returning to rental rates displayed at the beginning of the year. Average lease rates remain well below 2008 levels, which averaged $20.95persq.ft.FSGfortheyear.ConsistentdemandandthelackofnewsupplyforqualityClassAspacehavecontributedtothelackofappreciation.However, landlordsworked to decrease concessions inboth free rent and tenant improvements during 2013. We anticipate a slight increase in average rental rates this year, supported by increased demand from several industries.

DELIVERIES AND CONSTRUCTIONAfter several years of strong pre-recession construction activity, the region has seen only a handful of deliveries in recent years. Despite healthy leasing activity and steadily declining vacancy rates, rents are too low to supportspeculativeconstruction.Officerentsshouldbeinthemid-$20.00persq.ft.rangeinordertodrivenewdevelopment.Currentdevelopmentactivity in the area revolves around built-to-suit properties and expansions to existing facilities. Notable projects include Woodward’s new global headquarters in FortCollinswith phase II delivering60,000 sq. ft. ofoffice space in2015, Kaiser Permanente’s newestNorthernColoradoclinicinGreeleylocatedattheformerNewFrontierBanklocationandthe $86.0 million Banner Health Fort Collins Medical Center on Harmony Road slated to open in 2015. Encompass Technologies is underway on itsfour-story,$9.0millionmixed-useprojectat418LindenStreetthatwillincludeofficespace,arestaurantandapartments.Numericawillmoveintoa17,000sq.ft.office/flexbuildingthisyeardevelopedbyMichigan-based MAVDevelopment in Fort Collins.


Chart 7: Vacancy/Availability/Absorption

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Chart 8: Absorption vs. Construction

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KEY INVESTMENT DEALS• Harmony Corporate Center, Fort Collins largest multi-tenant buildingat190,000sq.ft.,for$32million($167.88persq.ft.)

• 2301 Research Blvd in Fort Collins sold for $11.3 million as part of a four property portfolio

• StateFarm Insurance threebuildingcampusat1555PromontoryCircle in Greeley sold but no occupancy changes occurred

• Healthcare Realty Trust purchased the North and SouthMedicalOffice Buildings, a 150,291-sq. ft. campus in Loveland that isconnectedtotheMedicalCenteroftheRockiesfor$55.0million

• Griffin-AmericanHealthcareREITIIInc.purchasedathree-buildingmedicalofficecampusinGreeleyfor$15.0million



MarketRentable Area SF

Direct VacancyRate %

2013 Net Absorption SF

Under Construction SF

Average Asking Lease Rate-$ SF/YR (FSG)

Availability Rate %

Total Vacancy Rate %

Larimer County 9,069,548 6.6% 121,474 53,000 $19.15 8.6% 6.9%

Fort Collins 6,480,228 5.8% 51,303 53,000 $19.00 7.2% 6.2%

Loveland 2,019,596 8.9% 52,921 0 $19.20 12.4% 8.9%

Weld County 4,656,673 7.0% (9,406) 0 $15.61 9.4% 7.0%

Greeley 3,476,117 7.9% (27,050) 0 $14.85 9.7% 7.9%

Northern Colorado Total 13,726,221 6.7% 112,068 53,000 $17.98 8.8% 6.9%



Table 1: Q4 2013 Office Submarket Detail


INDUSTRIALNorthern Colorado’s industrial real estate market strengthened in2013,primarilyduetotheinfluxofoilandgasinvestmenttotheregion,including auxiliary services, and increased demand from manufacturing users. Vacancy rates have declined in recent years and rental rates have increased since 2011. The region is on the tipping point for speculative construction to be re-introduced.

VACANCY/ABSORPTIONIndustrial vacancy has steadily declined since Q1 2012 when vacancy stoodat10.5%.AsofQ42013, themarketreported8.0%vacancy,a1.4%decrease fromayearearlierand the lowestquarterly rate infive years. Sublease vacancy remains low at 0.2% as ofQ4 2013.Themajorityof leasingactivity relates to tenants looking for1,500 -3,000sq.ft.forwhichminimalvacantinventoryexistsandthevacantspaceonthemarketislargelyfunctionallyobsolescent.Onaccountofthe shrinkingquality inventoryavailable, the likelihoodof speculativedevelopment is growing.

Thelackofnewconstructionrecentlysupportedpositivenetabsorptionin2013of858,882sq.ft.,asubstantialincreasefromthe265,334sq.ft. recorded in the prior year and the most activity since 2007 when 1.38 millionsq.ft.ofnetabsorptionoccurred.Givenminimalconstructionactivity, existing industrial parks such as the RockyMountain Centerfor Innovation and Technology, offering more than 800,000 sq. ft.of manufacturing and mixed-use space, can absorb a considerable amount of future demand.

NORTHERN COLORADO OUTLOOKBY PROPERTY TYPE | INDUSTRIAL


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LEASE RATES Industrial rental rates have been steadily increasing along with overall demand since Q3 2011 when rates were $6.16 per sq. ft. triple net(NNN),thelowestrateinrecentyears.Averageleaseratesincreased40basispointsfrom$6.57persq.ft.NNNinQ42012to$6.97persq.ft.NNNinQ42013,nearingthe$7.00mark.Landlordsaregenerallynotofferingconcessionstosecureleasesandinsteadsigningtenantsataskingprice with little room for negotiation. Although rents are strengthening and expected to continue to climb in 2014, rents are still too low to support new construction. Rents remain depressed in the face of low vacancy because oftheamountoftimemanybuildingsspendonthemarket.Thereasonforthiscouldbelingeringuncertaintyinthemarketorthatthesmallnumberofremaining buildings do not suit the needs of potential buyers.

DELIVERIES AND CONSTRUCTIONLow rental rates are hindering speculative construction despite tight marketconditionsandincreaseddemand.Rentsneedtoexceed$9.00persq.ft.NNNtoincitenewconstructionandgenerallyspeaking,thesector is close to the tipping point for speculative projects. That being said, limited construction activity has been ongoing at a decent clip the last three years, largely from build-to-suit projects for oil and gas and manufacturing companies. Halliburton completed a 199,000 sq. ft.ClassBexpansioninFortLuptonlastyear.Anadarkorecentlycompleteda 50,000 sq. ft. building in Platteville after outgrowing its BrightonfacilityandNobleEnergyannouncedplans tosignificantlyexpand its66,000sq.ft.headquartersinGreeley.

On the manufacturing side, Avago Technologies, a semiconductor manufacturer, is undergoing a major $22.0 million expansion at its FortCollins facility.Theprojectwilladd138,800sq. ft.andsupport100 new jobs. Leprino Foods Factory in Greeley will complete the third phaseofa900,000sq.ft.cheeseandwheyfacilitythisyear.




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We anticipate modest speculative project announcements in 2014 with delivery targeting 2015 along with continued build-to-suit activity. The firstwaveof new constructionactivitywill bemorebuild-to-suitsandprogresstospeculativeprojectsbasedonabsorptionandmarketreactions. Pre-leasing of 50% for speculative can be expected.

KET INVESTMENT DEALS • 960DiamondValley,a39,000sq.ft.ClassBindustrialwarehouse

in Windsor sold for $3.7 million.

• 2221ClaytonPlace,a84,524sq.ft.ClassBsq.ft.mobileproductionfacility in Berthoud, sold for $1.3 million and has been repurposed for an oil and gas user.

• 3555SouthLincoln,a15,247sq.ft.ClassBwarehouseinLoveland,sold for $1.3 million. Originally sold as a distressed deal in 2009 for $800,000.

• 15549 Highway 52, a 27,340 sq. ft. Class B building in FortLupton,soldfor$1.8million.ThepropertyisbeingleasedbySanjelCorporation - an Alberta, Canada-based energy company.

• 7755MillerDrive,a43,919sq.ft.ClassBmanufacturingbuildinginFrederick,soldfor$3.1million.

• 3620Weicker Drive, a 250,400 sq. ft. Class B building in FortCollins, sold for $13.6 million.

• 3600 Ronald Reagan Boulevard in Johnstown, a 165,000 sq. ft.Class A building, sold for $19.3 million.







Average Asking Lease Rate-$ SF/YR (NNN)

Availability Rate %


Larimer County 19,481,737 7.4% 255,310 0 $6.91 10.0% 7.7%

Fort Collins 11,126,741 3.4% 17,234 0 $6.92 5.9% 3.7%

Loveland 7,204,543 13.4% 44,932 0 $7.97 14.9% 13.7%

Weld County 21,813,114 8.6% 603,572 645,333 $7.04 11.3% 8.6%

Greeley 7,567,488 10.7% 214,623 500,000 $4.83 13.3% 11.0%




Table 2: Q4 2013 Industrial Submarket Detail


RETAILRetailmarkets acrossNorthernColorado strengthened in 2013withlease rates steadily increasingandvacancy ratesdeclining, reflectinga recovering economy. Retail demand is driven by consumer demand which has also improved. The region’s strong concentration of high-payinghealthcareandtechnologyworkersprovideadditionaldisposableincome to local retail establishments.

The regional retailmarketplace will change considerably in the nexttwoyearsassignificantredevelopmentoccursatFoothillsMallinFortCollins.Thependingredevelopment,whichisseekingfinalapprovalinQ1 2014, has displaced a handful of existing mall tenants that will not be able to afford higher lease rates in the future. Overall though, the substantial redevelopment will improve shopping options in the area by attracting new national retailers and generally improve the retail marketplaceinFortCollins.

NORTHERN COLORADO OUTLOOKBY PROPERTY TYPE | RETAIL


VACANCY/ABSORPTIONVacancy rates have generally declined since Q4 2010 when rates peakedat8.1%.Considerable leasingactivity and three consecutiveyears of positive absorption helped push vacancy rates down to 5.4% by Q4 2013 with minimal sublease space available. As of year-end 2013,absorptionregistered362,678sq.ft.,upfrom302,310sq.ft.intheprioryear.Aconsiderableamountofthespaceleftonthemarketis due to functional obsolescence, such as Golden Corral that is now being sold as condos with only one of the four units under contract. Vacancy conditions in Fort Collins and Loveland are similar; however, Greeleyhasn’tseenabsorptionofthesamelevelandconsequentlyhasahighervacancyrate.Restaurantvacancyspecifically inGreeleyhasdecreased by nearly half to around 4.5% in 2013. In 2014, overall vacancy in Northern Colorado is expected to decline due to continued positive absorption.

LEASE RATESNotable gains occurred in 2013 as average lease rates increased from $12.16persq.ft.NNNinQ12013to$12.59persq.ft.NNNinQ42013.ClassArentshaveincreasedslightlyamongtenantslookingfor1,500-3,000sq.ft.withrentsinthehigh$20’stolow$30’s.ClassBrentshavealsoincreasedslightlybetween$15-$20persq.ft.NNN.In 2014, rents are expected to increase modestly.

DELIVERIES AND CONSTRUCTIONThe retail segment is indeedhealthyand consequently seeing severalnew developments occurring across Northern Colorado, especially in Larimer County. Most of the development activity is build-to-suit or build-to-own and not speculative. New construction consists primarily of small, freestandingretailbuildingsbetween5,000sq.ft.and15,000sq.ft.


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Most notably, the $313.0 million Foothills Mall redevelopment by Alberta Partners in Fort Collins is set to begin construction in 2014, although it will not impact keymarket statistics until 2015when the658,000sq. ft. of retail space opens for business. Fort Collins City Councilwillvoteinearly2014forfinalapprovalofthe$53.0millionpublic-privatefinancingpackage.Theprojectalso includes500apartments upon completion.

New retail projects are sprinkled throughout Fort Collins, and theCenterra development in Loveland is seeing activity with the construction ofBassProShopsandthesurroundingretailspace,includingahotel.Costco has announced plans to purchase several acres off Harmony RoadandI-25andopenthenewstorein2014.SummitCompaniesisplanninga$15.0million,50,000sq.ft.restaurantandentertainmentvenue at Eagle Crossing near the Ranch. The Summit is projectedto open mid-year 2014 and will feature a bowling alley and lounge, games, restaurant, sports bar and live music.

Greeley will also see retail-related construction activity in the next few years, partly driven by new residential construction. Greeley’s population is expected to pass 100,000 people within two years according to GreeleyCommunityDevelopmentOfficials.

KEY INVESTMENT DEALS • ALovelandshoppingcenter,29thSt.Plaza,waspurchasedfor$3.1

million by an investment group and will undergo major renovations into 2014.

• FortCollinsdeveloperLesKaplanpurchaseda32,130sq.ft.buildingwhichhousestheCarmikeMovieTheaterat3636ManhattanAve.inmidtownFortCollinsfor$4.2millionandthevacantToys“R”Usbuilding on Mitchell Drive.




(100,000)

100,000

300,000

500,000

700,000

900,000

2008 2009 2010 2011 2012 2013

Absorption YTDQ4 2013 Under Construction






Average Asking Lease Rate-$ SF/YR (NNN)

Availability Rate %


Larimer County 17,430,592 5.2% 86,546 24,591 $13.74 7.1% 5.2%

Fort Collins 10,024,755 5.6% 117,439 24,591 $13.09 7.5% 5.6%

Loveland 6,219,834 4.8% (35,815) 0 $14.52 6.0% 4.8%

Weld County 9,408,115 5.9% 275,749 39,608 $10.57 9.1% 6.1%

Greeley 5,976,758 6.6% 135,461 5,695 $9.98 10.6% 6.6%



Table 3: Q4 2013 Retail Submarket Detail



LANDDemand for land was strong across the Front Range in 2013, resulting in historically tightmarketconditions forcertainproduct types. InNorthernColorado, land sales volume increased for the third consecutive year in 2013, reaching $148.5 million and surpassing 2008 activity. The average pricepersq.ft.decreasedhowever.

Both single-family and multi-family residential builders acquiredpositions throughout the Front Range last year, however, multi-family land sales slowed in the second half of the year due to the cautious positionofinstitutionalequitysources.OilandgasactivityinNorthernColorado encouraged land sales for both residential and commercial userswiththeinfluxofcapitalfromtheenergyindustrycreatingademandgenerator that did not previously exist. Employment and population growth will keep demand for single-family residential developmentelevated in 2014. However, developers will continue to face water rights issues in Northern Colorado with the Colorado Big Thompson and high development fees that compound the challenges of increasing construction costs.

NORTHERN COLORADO OUTLOOKBY PROPERTY TYPE | LAND

Chart 12: Sales Transactions and Price Per Sq. Ft

$0.30

$0.50

$0.70

$0.90

$1.10

$1.30

-

50

100

150

200

250

2005 2006 2007 2008 2009 2010 2011 2012 2013

# of Transactions Avg Price per sq. ft.


Chart 13: Sales Volume

$-

$50

$100

$150

$200

$250

$300

$350

$400

$450

2005 2006 2007 2008 2009 2010 2011 2012 2013

Source: CoStar

Mill

ions


NORTHERN COLORADO OUTLOOKBY PROPERTY TYPE | MULTI-FAMILY

MULTI FAMILYDevelopershavetakennoteofNorthernColorado’sgrowingpopulationand demand from the large college and young professionals student demographics. Despite record low vacancy, rent growth rate is slowing after incurring substantial increases in rents over the last few years, particularly in the Fort Collins area.

VACANCY/ABSORPTIONOverall vacancy decreased by 51 basis points between Q3 2013 and Q42013toendtheyearatarecordlow2.4%.Thetrailingfour-quarteraverageratedecreasedby139basispoints(bps)to2.8%,alsoarecordlow.VacancydecreasedacrossallofthesubmarketsalthoughLovelandreported the highest regional vacancy of 3.3%. Vacancy declined by 39bpsinWeldCountyendingtheyearat1.8%,whichisasignificantimprovementfromsevenquartersagowhenvacancywas9.3%.WeldCountyhasthelowestvacancyratesamongallsubmarkets.

LEASE RATESIn Q4 2013, monthly rent increased $3.00 from the prior quarterendingat$994perunitor$1.14persq. ft. Theannualgrowthrateslowedto4.9%,theslowestin14quarters.Still,monthlyaveragerentis$46 higher than in Q4 2012. Weld County reported the highest annual growthrateamongthesubmarketsof8.6%.Loveland’saveragerentfellby $17.00 in Q4 2013 to $1,152 per unit but still has the highest rent in Northern Colorado.

DELIVERIES AND CONSTRUCTION.Several multi-family development projects are currently underway inNorthern Colorado. In Fort Collins, a 310-unit apartment complex is beingbuiltonalmost17acresoflandat6111S.TimberlineRoadinFortCollins.ThelandwasacquiredbyCrownePartners,anAlabama-baseddeveloper of multi-family projects for about $2.5 million.

Construction of a $28.0 million 659-bed student housing project called The District at Campus West is also underway in Fort Collins and scheduled for completion in July 2014. The project includes three residential buildings,encompassing318,000sq.ft.andaparkinggarage.

A 262-bed off-campus student housing project is under construction in Greeley with plans to open in time for the fall 2014 semester. The $10.0 million project, called University Flats, is being developed by Greeley RealtyInvestors,anaffiliateofDenver-basedCenterStreetCapital.Theprojectwill includeeightbuildings located justa fewblocks from theUniversity of Northern Colorado campus. Once completed, University Flats could help alleviate some of the strain on multi-family rentals in Greeley, where the vacancy rate for such properties dropped to 1.4% in early2013.RentsinGreeleyhavemirroredthetighteningrentalmarket,crossing the $700.0 threshold.

TheSpanosCorp.,aCalifornia-basedcompany,willbuilda240-unitmulti-family complex in Johnstown, with construction scheduled to begin in early 2014. The project will phase delivery into 2015.


CORPORATEOVERVIEW


CORPORATEOVERVIEW

NORTHERN COLORADO OFFICE INFORMATIONSpurredbyourbeliefinthemarketandthetalentedgroupofprofessionalsassembled,CBREwasverypleasedtoopenanewofficeinFortCollinsin 2013. We are excited to bring a new and unmatched level of service, information and counsel to our clients in Northern Colorado.

TheFortCollinsoffice includes specialists inallareasofcommercialrealestate,ledbyRayPittman,SeniorManagingDirectorandColoradoMarketLeaderandKateWaggoner,DirectorofEnterpriseManagement.TheseservicesincludeAssetServices,BrokerageServicesincludingTenantand Landlord Representation, Debt & Structured Finance, CorporateServices,InvestmentBrokerage/Agency,ProjectManagement,ResearchandAnalysis,andValuationandAppraisalServices.


SERVICELINES


SERVICELINES

CBRE SERVICE LINES

ASSET SERVICESWhen it comes to transforming assets into opportunities, institutional andindividualpropertyownerscountonourAssetServicesgroup.Weprovide measurable results across a spectrum of services, including property management, leasing, tenant relations, project and construction management,technicalservices,riskmanagement,purchasing,energymanagementandaccountingandfinancialreporting.

BROKERAGE SERVICESCBREprovidesacompletespectrumofcommercialrealestatebrokerageservices—including owner and tenant leasing, acquisition and sales,marketing and consulting—to owners, investors and occupiers of allproperty types.Usingauniquesystemthatemphasizes thesystematicsharingofinformation,ourBrokerageprofessionalscombinetheirownskillswiththefirm’scollectiveknowledgeresourcestohelpourclientsmakethesoundest,mostinformedrealestatedecisionspossible.

CONSULTINGCBRE’s group of senior strategy consultants provides real estate solutions that help drive superior business performance for our clients. Through business intelligence combined with portfolio optimization, location analysis and organizational strategies, the Consulting group develops opportunities for companies to maximize value from their real estate assets.

DEBT & STRUCTURED FINANCECBRE Debt & Structured Finance is a highly versatile real estateinvestmentbankingsubsidiarythatdevelopsabroadscopeofdebtandequityfinancingoptionsandalsounderwritesandservicescommercialmortgage loan investments for all property types.

FACILITIES MANAGEMENTCBREmanagesmillions of square feet for brand-name corporationsaround the world. We deliver the highest level of customer service, enabling clients to focus on their core business. Our proven approach leverages the leading technology platform in the industry to provide comprehensiveportfoliointelligencetosupporttheidealworkplace.

GLOBAL CORPORATE SERVICESGlobalCorporateServicesdelivers customized, innovativeworkplacesolutionsworldwide.Strategicallypositionedtoanswerourcorporate,government and institutional clients’ real estate needs, this group combines an unrivaled consulting, outsourcing and transaction managementplatformwithindustry-specificexpertiseandglobalservicedeliverytoprovideclientswithlong-term,qualityaccountmanagement.

INDUSTRIAL SERVICESOurIndustrialServicesprofessionalsapplytheirunderstandingofcurrentand emerging technologies, production processes and global business practices to all assignments. This enables them to meet the needs of clients for manufacturing, assembly, research and development, distribution and warehouse facilities as well as land acquisition/disposition assignments.

INVESTMENT MANAGEMENTCBRE Investors, L.L.C. is a registered investment advisor sponsoring real estate investment programs for institutional investors worldwide. The ongoing performance of CBRE Investors, a wholly owned yet independently managed subsidiary, has an enviable track record ininvestment performance.


INVESTMENT PROPERTIESCBREInvestmentPropertiesspecializesintheacquisitionanddispositionof income-producing properties for third party owners, providing buyers with local and international exposure to opportunities and capital markets;andweoffersellers theability tomarketanassetquickly tomaximize its value.

PROJECT MANAGEMENTOur uniquely experienced and effective ProjectManagement groupprovides valuable expertise before, during and after each phase of the project. The group’s services range from site evaluation to occupancy planning, including capital improvement and build-to-suitprojectsofallsizesforoffice,retailandindustrialspace.

RESEARCH AND ANALYSISTo track and forecast commercial real estate supply and demandaccurately in markets across the United States, our Torto WheatonResearch subsidiary uses its own highly sophisticated forecasting models and proven analytical expertise to create reports, along with other data, analysis and consulting services.

RETAIL SERVICESRetailServicesmeetstheuniqueopportunitiesandchallengespresentedby retail properties and companies. With professionals positioned around the world, we offer solutions to meet our clients’ individual needs—whether they have one location or a thousand, whether their interestisacquisitionordisposition.

SPECIALTY SERVICESWith more than two-dozen distinct specialties, these groups offer a unique level of expertise, insight and experience by focusingon aparticular industry, client or property type. The professionals associated withourSpecialtyServicesarerecognizedexpertsintheirfield.Theywatchtrendsintherealestatemarketsandconstantlymeasurethemagainst trends in their area of specialty.

VALUATION AND ADVISORY SERVICESTheValuationandAdvisoryServicesgroupprovidesaccurate,reliableand timely valuations critical to the success of every real estate transactionorfinancing.Thisisaccomplishedthroughtheaccumulationanddisseminationofuniquelycomprehensivedataoncommercialrealestate throughout the world.

SERVICELINES


Corporate Locations

Affiliate Locations

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SERVICELINES

© 2014, CBRE, Inc.

DISCLAIMER:Informationcontainedherein,includingprojections,hasbeenobtainedfromsourcesbelievedtobereliable.Whilewedonotdoubtitsaccuracy,wehavenotverifieditandmakenoguarantee,warrantyorrepresentationaboutit.Itisyourresponsibilitytoconfirmindependentlyitsaccuracyandcompleteness.ThisinformationispresentedexclusivelyforusebyCBRE clients and professionals and all rights to the material are reserved and cannot be reproduced without prior written permission of the CBRE Global Chief Economist.

© 2014, CBRE, Inc.

Ray PittmanSeniorManagingDirector Colorado Regiont: +1 720 528 6357e: [email protected]

Kate WaggonerDirector, Enterprise Management Colorado Regiont: +1 720 528 6461e: [email protected]

Daniel ClarkRegional Research Operations Manager, Colorado Regiont: +1 720 528 6347e: [email protected]

Jessica OstermickDirector, Research & Analysis Global Research & Consultingt: +1 720 528 6338e: [email protected]

Tim SwanManaging Director Colorado Regiont: +1 720 528 1766e: [email protected]

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