Commercial real estate investors looking at Steamboat Springs must have been paying attention to the old advice to “buy dirt,” or maybe the recent hit country song with those lyrics hit home.
Real estate agents in the commercial arena in Steamboat say many investors bought vacant land for development or vacant lots for commercial redevelopment during the past two or three years, leaving little commercial-zoned space available within city limits.
“There is no dirt,” said Chris Sias, a broker with The Paoli Group in Steamboat. “Existing structures are selling for high, high prices, and demand is still strong.”
Brokers note the top areas for recent commercial purchases include Ski Time Square Drive along the north edge of the Steamboat Resort base area and in the Copper Ridge light industrial area along Elk River Road in north Steamboat.
Millions of dollars in capital improvement at Steamboat Resort by Alterra Mountain Co. have helped spur purchases along Ski Time Square Drive.
“People just thought things are coming back at the mountain,” Sias noted, which may have led to a positive domino effect in local commercial sales.
Tight availability and high demand for light industrial zoned property spurred the purchase of 15 industrial lots scattered throughout the Copper Ridge and Elk River Road corridor since January 2020, said Chris Paoli, a real estate agent in Steamboat since 2005.
Redevelopment on Yampa Street in downtown Steamboat provided another boost, according to local real estate agents.
Sias has seen a healthy amount of 1031 Tax-Deferred Exchange commercial purchases locally. Federal tax code 1031 is a real estate investment tool that allows sellers to defer capital gains tax at the time of sale if they buy a like-kind property within 180 days.
“I do think people are bullish on Steamboat simply because the town is doing well,” Sias said.
Commercial property developers are fighting against the shortage of construction workers and subcontractors and high interest rates. At the same time, the occupancy rate for all commercial property types for retail, office and light industrial is above 90%, agents said.
More homebuyers moved to Steamboat during the pandemic, and commercial property highs usually follow residential booms by roughly 12 to 18 months, agents say.
“When the residential market was getting hot, a few months later in the commercial market, we saw lease rates starting to increase, and commercial sales activity and opportunity increased,” said Greg Breslau, a broker with The Group Real Estate in Steamboat.
When the increase in interest rates cooled the local residential real estate market, the commercial market soon followed suit. Commercial property sales currently are quiet with limited inventory.
One commercial property category that is in high demand in Routt County is light industrial space including storage or small warehouses at 2,000 square feet or smaller. Sias and Paoli said light industrial spaces have approximately doubled in price in the past two to three years from about $200 per square foot to closer to $400 per square foot.
Paoli recently developed a project of nine small warehouse units at approximately 850 square feet each with bathrooms, heat, and some with 300-square-foot loft spaces, on Marble Court on the north edge of Steamboat. Another small developer built an additional five units nearby.
At an asking price of $475,000, eight of the units were sold or leased upon completion starting in August, with only one still available, Paoli said. He noted increased costs for steel, concrete and subcontractor labor contributed to increased unit costs.
James Howser, a broker with Steamboat Sotheby’s International Realty, said high commercial occupancy rates are leading landlords to raise commercial lease rates, and the commercial market is currently very seller and landlord friendly.
Breslau said he sees more owner-users in the retail commercial market as that makes more financial sense for established businesses.
Office space went from over supplied about two years ago, especially after several Steamboat companies downsized, to tight now, Sias noted. With more families and remote workers moving from larger urban areas to more rural Routt County during the pandemic, some remote workers now are tired of working out of a spare bedroom and looking for office space, Howser said.
With commercial land limited within Steamboat city limits, several agents pointed to the industrial park opportunities on the east side of Hayden as a future bright spot in the Routt County commercial market.
To reach Suzie Romig, call 970-871-4205 or email [email protected]