Report examines commercial real estate trends in Western states
July 12, 2014
Steamboat Springs — After analyzing where Rocky Mountain real estate markets are following nationwide residential trends in its RESET report, The Sonoran Institute has moved on to commercial trends in its recent study, RESTORE: Commercial and Mixed-use Development Trends in the Rocky Mountain West.
The Sonoran Institute works with communities across the West trying to grapple with questions of growth and land use, and in the RESTORE study, the organization examined what the future holds for commercial development in Idaho, Montana, Wyoming and Western Colorado.
According to the study, demographic and consumer preference trends point toward more walkable neighborhoods and developments, making mixed-use development key.
"Many elements are in place in the Rocky Mountain West to successfully support mixed-use development," the report stated. "Local governments are generally supportive, the necessary zoning and municipal policies that can serve as models are in place in many areas, and consumer preferences are continually moving toward mixed-use neighborhoods."
Steamboat Springs is not among the cities specifically included in the study, but it has shown some of the same demographic trends cited in the report and saw a number of mixed-use developments built in 2007 and 2008.
The study divided its subject cities into three tiers, with the highest Tier A representing the communities most primed for mixed-use development. Tier A communities had a sizable population, a high median income and a youthful and well-educated population, in addition to showing significant growth from 2010 to 2012.
Jillian Sutherland, of The Sonoran Institute, said the top two considerations for sorting cities into tiers were population growth and the spending power of the community.
For example, Sutherland said, Telluride is the smallest Tier A community but has the financial capacity to support multiple types of mixed-use developments.
Steamboat matched top-tier communities in median income and the proportion of the population with bachelor's degrees but is older, smaller and barely has grown since 2010.
But in the years right before the real estate crash, a number of downtown mixed-use buildings were constructed.
Jon Sanders, of Ski Town Commercial, was hired in 2007 by Green Courte, which built Howelsen Place and Alpenglow in downtown Steamboat.
"The economy turned, and that made it very hard," Sanders said. "It made it hard on tenants in place."
More recently, commercial leasing and residential sales have picked up in downtown mixed-use buildings, where the price per square foot of condos sold during 2014 has ranged from about $440 to more than $700.
In most communities, Sutherland said, the study found that commercial space in mixed-use buildings did not command much of a premium compared to similar single-use spaces.
Commercial space in Howelsen Place on Lincoln Avenue is priced between $20 and $40 per square foot, according to its website, which is higher than many of the mixed-use buildings included in The Sonoran Institute's study.
Location is a main factor in driving those prices, Sanders said.
"Its easy to lease those projects," he said about Howelsen Place and Alpenglow. "It's all about location in this town."
The Sonoran Institute study also documented a trend it called "right-sizing," where retail businesses are taking fewer square feet.
Sanders said demand is high for smaller spaces, which are renting for the highest dollar value per square foot.
"If we had more 1,000-square-foot spaces downtown, I have tenants for them," he said.
Retails are becoming an experience, Sanders said, and that's why restaurants are doing so well downtown — the experience can't be replicated virtually.
The report agreed, citing an Urban Land Institute survey that found a majority of 18- to 35-year-olds said they "still enjoyed the shopping experience, viewing it as a form of entertainment and as an opportunity to socialize with friends and family."
"Restaurants are currently the most dynamic retail category, and over half of all leasing transactions are with food and beverage tenants," the report stated. "The public is seeking new dining concepts and shifting away from chain restaurants toward artisan restaurants and bars."
"Each example of mixed- and multi-use developments in the region increases the public and private sectors' familiarity and confidence in them," the report stated. "In time, it will become more commonplace to see these development types. We believe they will continue to capture a larger market share of new commercial development projects in the region."