Vermont’s economy continues to strengthen with commercial real estate market responding in kind - by Duncan Harris and Ross Montgomery

Duncan Harris, The Kingsland Co.

Growth in all markets, while not yet at historical averages, are up at least a point from a year ago, marking investor confidence in strengthening markets across the board. And while Class B suburban office continues its soft streak, demand for Class A office, industrial and Central Business District (CBD) retail space continues to strengthen.

RETAIL: The conversation from a year ago continues to be the same in the retail sector, with the redevelopment of the Burlington Town Center project gaining steam. With the city of Burlington pre-development agreement being approved by the city council at a 10-1 margin. Calling for 1.2 million s/f potential redevelopment, including up to 274 residential units, 330,000 s/f of office, and 215,000 s/f of retail space, this ground up redevelopment will change the entire complexion of downtown Burlington, bringing new life, vibrancy, and not to mention jobs and economic strength the downtown sector and greater Chittenden County economy.

Ross Montgomery, The Kingsland Co.

OFFICE: Suburban Class B continues to be the story in the office market, showing a 10.8% vacancy rate to close out 2015 and signs only pointing toward that number inflating through this year. The bright spot here is the Class A office, both in the CBD and suburban sectors, having steadily declining vacancy rates, stable to upward pressure on rental rates, and planned development of new inventory north of 100,000 s/f in the suburban market alone. Look for a slow year through 2016 with numbers across the board regulating in early 2017.

INDUSTRIAL: Industrial growth has been lagging behind the somewhat uncertain long-term stability of the market in general, but we are starting to gain footing with vacancy rates down around 5% and 220,000 s/f of planned new inventory in 2016. Rates continue to stabilize across the industrial sector, and demand, while not at historical highs, net absorption of space over time is close to the averages. Instability has plagued the industrial market in the past few years, but with a current undersupply of inventory in relation to demand, the industrial market continues to strengthen.

MULTI-FAMILY: The end of 2014 marked the 5th consecutive year of sub-2% vacancy in the Chittenden County multi-family market. The end of 2015 showed 3.0% vacancy, but was due only to the at the time record growth of supply during that same year. 2016 is no different, with new record growth of 582 units slated to come online and vacancy around the same. Unit prices in trades are beginning to stabilize, but this market will continue to be strong in years to come, particularly in the age-restricted and senior housing markets.

RATES OF RETURN: Rates of return on multi-family investments have remained steady at around 6.8% for the trailing five years with a slight uptick this past one. Industrial cap rates top out at an average of 8.8% with retail and office at 7.7% and 7.9% respectively. This shows a slight increase over the last 10 years for industrial, while retail and office have remained steady over that same period of time.

Duncan Harris and Ross Montgomery are principals of The Kingsland Co., Burlington, VT.