Ask a Broker: What’s happening on commercial side of the real estate market? | Business
No one ever asks about commercial real estate, even though it literally encompasses every single building that isn’t a house: stores, schools, hospitals and virtually everything else. Still, when you’re talking about commercial real estate in the Roaring Fork Valley, it’s not as big of a market as the residential side, and it’s important for buyers to strategize.
In the Aspen area, we have a feeder market. The more demand we have for housing, the more demand we have for services, and it’s trickling downvalley. It wasn’t that long ago that Basalt and Carbondale were just bedroom communities for Aspen, but over time they have grown exponentially to provide robust amenities and services. The development of Willits Town Center in the midvalley is a prime example.
The biggest trend we’re seeing is the valley’s population that moved here in the ’60s, ’70s and ’80s and started businesses is starting to age out and retire. What we’re concentrating on is working with the next generation to help connect them with the sellers who are ready to retire and sell their businesses and buildings. There is a generational shift driving our market right now.
Another trend is the cash infusion that came into the valley with the recent residential boom over the last three years has now permeated the commercial market. Over the last 24 to 36 months, we’ve seen investors who are shifting out of other, less stable holdings and parking their money in the commercial market at a rapid pace.
It’s true that our inventory is somewhat limited, like what we’ve seen in the residential market, but the demand is still there. This has required us to be more creative, resourceful and boots-on-the-ground with knowing what leases are coming up and talking with current business owners about whether they want to sell. If these deals are done right — and there is clear understanding for all parties involved (landlord, entrepreneurs, developers and tenants) — it can provide stability and growth for a community. Otherwise, it can cause turnover that actually reflects poorly on the community.
In terms of location, Glenwood Springs has a lot of potential because its town council has made some pretty aggressive moves for incentivizing development downtown, and there’s a much younger, more progressive outlook on the town’s growth over the next decade. We also have our eye on the Colorado River Valley west of Glenwood, where small towns like New Castle and Parachute are really booming. There is an “if you build it, they will come” mentality around commercial real estate as those residential populations continue to grow and there is an increased demand in services to serve those communities.
The important thing to remember about commercial real estate is you don’t have the same frenzy you do with residential. Commercial values are based on rental value and cap rate percentages, so we don’t have huge spikes and huge drops. If a building is full and rented, leases are typically a minimum of five years or longer, so it’s a very secure investment. Even if there is a downturn in the residential market, the commercial market remains stable. The key is in being able to anticipate the supply when it comes up, and that’s precisely what we are here for. The bottom line is always in the numbers.
Mike Mercatoris has owned or consulted on business in every town in our valley. He launched the commercial and Entrepreneurial real estate division at Slifer Smith & Frampton to help local entrepreneurs on their real estate journey. Email Mike at MMercatoris@sliferrfv.com.