Local real estate experts say commercial rents have continued to rise gradually since the COVID-19 pandemic due to continued demand from people wanting to relocate, buy homes or set up businesses in Steamboat Springs, but not as sharply as home prices.
The underlying reason, according to Chris Sias, a broker with The Agency in Steamboat, is that the supply of both residential and commercial real estate is “very tight” compared to current demand. Sias spoke during a real estate panel at the 30th annual Routt County Economic Summit, held Thursday at Colorado Mountain College.
Within the restaurant, retail and industrial commercial real estate categories, properties in light industrial zones saw the biggest increase in average price per square foot in Steamboat post-pandemic, increasing by about 66% from pre-pandemic levels, rising from an average of $12 to $20 per square foot.
“Steamboat has very little industrial land available for development,” Sias said.
Sias said based on information he gained from eight years as a commercial broker, retail rents have increased from an average of $28 per square foot pre-pandemic to between $33 and $37 per square foot post-pandemic. Restaurant rents have increased slightly, from an average of $35 per square foot pre-pandemic to $40 post-pandemic.
Sias said the general rule of thumb for retail is 10% of sales for rent, but in Steamboat, rent can often be as much as 20% of sales. If retail sales increase after the pandemic, store owners may be able to charge higher rent, and other small store owners may have purchased their stores years ago when real estate prices and mortgage rates were lower.
Real estate agents say developers are more inclined to build residential over commercial properties to boost their return on investment. Bucking this trend, live-work construction is now on the rise. Popular residential units above ground-floor commercial space help developers make a successful investment, Sias said. Meanwhile, some of the new live-work units are not being used by businesses because owners have bought residential units and are keeping the downstairs commercial space as a “toy garage,” he said.
Dr. Nathan Perry, professor of economics at Colorado Mesa University, will speak about regional and local trends in demographics, labor markets, standards of living, industry, real estate and energy at the 30th annual Routt County Economic Summit at Colorado Mountain College on May 23, 2024. John F. Russell/Steamboat Pilot & Today
Other real estate panelists included Routt County Building Commissioner Todd Carr, Hayden Town Mayor Matthew Mendisco and Yampa Valley Housing Authority Executive Director Jason Peaslee.
Mendisco cited the 58-acre, $8 million Northwest Colorado Business Park (under development, 13 lots) located north of the Yampa Valley Regional Airport parking lot. Mendisco said the town spearheaded the development of the business park to meet a demand for light industrial land to retain Valley businesses, replace coal industry jobs and create above-average-income jobs.
“The key is to create jobs that allow people to live a middle-class life,” Mendisco said.
An audience member asked the panelists whether the numerous construction projects underway in Routt County could be built by local contractors and workers.
“The kind of commercial construction activity I've indicated cannot be supported locally,” Carr responded. “Local contractors are struggling right now, even at the residential level. They're looking for locations for contractors' shops, and then on top of that, they're trying to build apartments to house their employees.”
Mendisco said Hayden's large construction projects mostly bring in workers from outside construction companies. Business parks developed by the city are allowed to build residential units, but only for employees of companies within the development. Mendisco said another industrial park near the regional airport has been proposed by a private developer.
An audience member asked how Steamboat's commercial prices compare to other regional resort areas.
“I don't think it's the most expensive area, but prices are certainly rising thanks to investments on the mountains and good residential real estate available online,” Sias said.
The real estate agent likened the Steamboat Resort to calling itself the family-friendly “Columbia” “back in the day,” but now it's more like “The North Face.”
The real estate market is tight but popular, and it's impacting Steamboat's resident profile, Sias said in a follow-up interview Friday.
“The makeup of who's able to move to Steamboat is changing,” Sias said, “Steamboat remains a place where people really want to live. It's just getting more and more expensive to live here because there's not a lot of supply.”
While the housing market is experiencing limited supply and “shocking” prices, Sias and other panelists cited a “lock-in effect” that is discouraging potential sellers with low mortgage interest rates from selling or moving. Sias noted that there are currently only 37 single-family homes and 49 condominiums for sale in Steamboat, “a fraction of what a normal market would support,” and sales are closing at about 98 percent of the asking price.
Sias said 50 to 60 percent of home sales are to cash buyers, and home insurance rates for first-time homeowners have risen significantly.
“Insurance prices for older condominiums have become very expensive due to rising property values and recent disasters such as wildfires and floods, which has caused a significant increase in premiums and impacted this market,” Sias noted.