William Small: Commercial vacancies on the upswing
Special to The Aspen Times
Aspen, CO Colorado
Over the past year, I’ve reported on the changing landscape of Aspen’s retail and office market, and the impact of the national economic recession on Aspen’s downtown commercial core.
In January 2009, Aspen was experiencing a 3.2 percent vacancy rate with the prospects of it rising as the recession took hold. The question on everyone’s mind was whether the increasing vacancy rate would lead to a decline in commercial rent prices in the core.
By midyear 2009, the vacancy rate in the commercial core had doubled to about 6.4 percent. The rise in vacancies was in conjunction with a roughly 20 percent decline in overall retail activity in downtown Aspen, as reported by the city of Aspen. As fall 2009 approached, we noticed more vacant storefronts and “going out of business” sales. At one point this past fall, the vacancy rate in downtown Aspen had risen to close to 8.5 percent, which is normally a point in most commercial markets when the bargaining power of landlords and tenants is roughly equal – meaning tenants have multiple options for space, and landlords have to compete against each other to fill their spaces.
As we approached the end of 2009, a number of retail spaces were leased short term for the winter months by a mix of local and national tenants. This leasing activity helped bring down the vacancy rate as the winter season got under way. Some of the seasonal tenants will end up signing long-term leases, and the rest will give up their spaces at the end of the ski season.
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Currently, Aspen has about 1.39 million square feet of commercial space consisting of primarily retail, office and some light industrial. Roughly 67 percent – about 934,000 square feet – of the total inventory of commercial space is located downtown. At this time, no significant amount of new commercial space is scheduled for delivery in 2010. At the beginning of 2010, roughly 63,784 square feet of downtown Aspen commercial space was either vacant or soon to be vacant, with another 7,560 square feet of space available for sublease. Combining the available vacant and sublease space, the Aspen market currently has about 7.6 percent of its downtown commercial space available for new tenants.
Since January 2009, we’ve seen the available commercial space rate in downtown Aspen increase from 3.2 percent to 7.6 percent, and increase an additional 1.2 percent since last summer, when it stood at 6.4 percent.
What’s the outlook for the Aspen commercial core for the remainder of 2010? As we’ve seen in the past 18 months, Aspen’s economic health is tied closely to the national economy. The good news is that the national economy seemingly emerged from the Great Recession about mid-2009 and has seen two consecutive quarters of positive economic growth. In the last quarter of 2009, the national economy grew by 5.7 percent, the largest quarterly increase since 2002.
The national economic turnaround also has been felt in Aspen. It appears the downward slide in economic activity over the past year has subsided. In the first quarter of 2010, Aspen may actually see the first signs of an upward trend in retail activity since the 2008-2009 winter season. If the national and local economies continue to improve, we can expect the commercial vacancy rate in downtown Aspen to drop throughout 2010 and by the end of the year, the start of upward pressure on rental rates.
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