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Driving Forces Behind Flagstaff’s Commercial Real Estate

 

     2010 has been a kinder year for commercial real estate here in our beautiful mountain town. We have seen prices stabilize and even rise a little bit in certain sectors. Investors are still hiding. but owner/users are seeing opportunities. Vacancies are still very high but decreasing. New development does not exist, but this allows for absorption. The Real Estate Cycle seems to be revolving in a positive direction. Many economists and naysayers think these small feelings of relief are just temporary and that the other shoe still needs to drop. Sure, there are going to be problems in the future, but that is one of life’s sure things. There are also going to be great things happening in the future. Thanks anyway, but I would rather focus my attention and energy on the good. I don’t know about you, but I’m a glass-half-full kind of guy.

     Prices for commercial real estate bottomed in the last quarter of 2009 and first quarter of 2010; we saw prices south of $100 per square foot on properties, but $75-$100 per square foot seems to be the baseline. There have been a handful of foreclosures, but for the most part, commercial real estate in Flagstaff remains solid in the hands of well-to-do and seasoned individuals and families. There are some good values out there, but they are becoming far and few between. Sellers aren’t as motivated and I am even seeing prices rise.

     All but one of da Vinci sales this year have been to owner/users. Investors are still licking their wounds and having trouble financing properties. It doesn’t seem to matter if the investment is an eight percent Cap Rate or a 10 percent Cap Rate; there’s still no investment demand. Owner/users, on the other hand, are driving the market. Small businesses have found opportunity in the discounted 

pricing. Why lease a property when you can mortgage to own at a lower monthly cost? Seller financing has been a major resource for these growing companies.

The vacancy rate for office space is now less than 15 percent. Increasing lo- cal and federal government occupancy is driving occupancy. Medical office space with adequate parking remains in demand. Retail occupancy is much better; vacancy is at five percent or less for well located sites. Industrial/warehouse is 10 percent vacant, but decreasing. I believe that the industrial sector will lead our economy out of this recession to better times (great place to invest!). Multi-family vacancy remains and will continue to be low – under five percent. Although there is no new development, there is redevelopment. Owners are remodeling their buildings to attract tenants. This not only increases occupancy, but gives our city a needed facelift. A good example of this is the old Village Inn on Milton. da Vinci Realty was proud to represent not only the buyer and seller of that property but also represented the buyer in getting Chipotle as the tenant. Developments such as this increase the attraction to our city. Congratulations to Chipotle and the building’s owner. Nice job!

Thank God that 2010 has been a glass- is-half-full year. FBN

Mark T. Belsanti is an owner/agent for da Vinci Realty, LLC. He specializes in com- mercial brokerage in Flagstaff, Sedona, & the Verde Valley. You may reach him at 928-779-3800 office, 928-254-1770 cell, or mark@davincirealty.com.

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