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November 2016 — Multifamily Properties Quarterly — Page 31
cutbacks. Although it is true that
the region has five military installa-
tions with a combined employment
contribution in 2015 of approximately
55,000 workers, including active duty
and contractual workers, this still only
represents 17.7 percent of all workers
in the region.
An often-cited and incorrect statistic
is that the military represents 50 per-
cent of the local economy. That is sim-
ply untrue. There is no question that
base closures would cause negative
ramifications for the tax base, the real
estate market and, in fact, the entire
local economy. However, the current,
positive trajectory with new jobs in
high-skill sectors alongside the state-
wide in-migration of highly educated
people implies that the past reliance
on the military is dwindling. This is
a good thing – economic diversity is
insurance against disproportionately
harsh (local) downturns.
• Apartment vacancy: 3.6 percent. The
demographic and economic growth
has translated into a healthy multi-
family market. The citywide average
vacancy rate for Colorado Springs is
at a historic low of 3.6 percent in Sep-
tember. This is a significant 38 basis
points drop from the last quarter, and
115 bps below the year-ago average
vacancy rate of 4.7 percent.
The trailing four-quarter average
vacancy rate decreased by 29 bps to
4.1 percent, a new record low for the
past 10 years. The overall vacancy
rate, including properties in lease-up,
moved up 85 bps to 5.4 percent. How-
ever, this is still well below the year-
ago rate of 6 percent.
Vacancy for all major age groups
was below 4 percent with one excep-
tion. Properties built during the 1990s
posted an average rate of 4.2 percent.
The other age groups fell within a
narrow range of 3.4 to 3.9 percent.
The greatest improvement occurred
in the newest age group – those built
since 2010. Vacancy fell a significant
233 bps during the quarter for these
newer properties, down from 6.2 to 3.9
percent.
• Apartment rents: $948 per month. The
citywide average rent for the metro
area increased by a record $37 this
quarter or by 4 percent. The largest
previous gain was $24 during third-
quarter 2014. The annual gain in
rent increased by $79, for a 9 percent
growth rate, also a record.
All age groups posted healthy rent
increases during the quarter, resulting
in annual growth rates from 5.7 per-
cent for the newest properties to 10
percent for properties built between
2000 and 2009.
• Apartment sales: $93,100 per unit.
Year-to-date there have been 10 sales
with 1,954 units, compared to last
year’s total of 29 sales with 4,716
units. The average price per unit has
increased from last year’s $86,700 to
$93,100, an appreciation rate of 7.4
percent, despite an average age of
communities sold that is four years
older than last year.
• Apartments under construction:
1,300 units. Colorado Springs has 1,300
apartment units under construction
with 1,900 units planned. This com-
pares to Denver’s 25,000 apartment
units under construction with 26,000
units planned.
Unfortunately, Colorado Springs
was late to the party with economic
recovery and rent growth but, thank-
fully, Colorado Springs was late
to the party with rent growth and
new construction. Like many other
second-tier cities, Colorado Springs is
now experiencing the post-recession
economic expansion and correspond-
ing real estate growth. Absorption has
been strong, keeping up with the new
construction. This scenario alongside
the broader population growth is lur-
ing outside investment.
However, while these improving
conditions are motivating develop-
ers to build new product, the reduced
availability of construction financing
will likely keep a lid on the supply of
new apartments. This may not be a
bad thing. It may insulate Colorado
Springs from the over construction
that some first-tier cities are experi-
encing that can result in the painful
burst of a bubble. s
Springs