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February 2015 — Retail Properties Quarterly — Page 7
I t has been said that the econ-
omy of Colorado Springs his-
torically trails Denver by 12 to
18 months. When a downturn
hits the economy, Colorado
Springs may not feel the full impact
for up to a year after the Denver
market, and when the economy
begins to recover, Colorado Springs
does not see that recovery for 12
to 18 months. I have never heard
a definitive explanation for this
lag – maybe it is because Colo-
rado Springs’ economy is heavily
influenced by the military (30-plus
percent) and government spending
does not follow the national or state
economies, or maybe the compa-
nies that provide the primary jobs
have different influences than those
in Denver.
In this recovering economy, if
Denver is Colorado Springs’ older
brother and they are in economic
“school” together, Colorado Springs
was held back a grade in 2014.
Recovery of the Colorado Springs
market is well behind the 12- to
18-month lag we have grown to
expect.
Simply driving through each city
provides proof of the longer-than-
normal lag. In Denver there is new
commercial construction in every
quadrant. New homes are being
built in creative new developments,
and young people are attracted to
Denver for careers with established
companies as well as start-ups
and high-tech. In Colorado Springs
commercial construction is almost
nonexistent, new home construc-
tion is stagnant at recession rates
and well-qualified workers are mov-
ing to vibrant markets to the north.
These factors all have an impact
on the retail market in Colorado
Springs.
Retail vacancy and absorption. Tur-
ner Commercial Research reports
that overall retail vacancy rates
reached a historic low in Colorado
Springs in 2006 at 6.4 percent. Rates
rose each year after that, to a high
vacancy rate of 12.2 percent at the
end of 2012. (2014 ended with a 10.2
percent retail vacancy rate.)
Absorption (the change in the
amount of occupied space from one
period to another) was negative in
2011 and 2012, meaning the amount
of leasing activ-
ity could not sur-
pass the increases
in vacant space.
Positive absorption
numbers returned
in 2013 and 2014,
chiseling away
at the vacancy
rates. However, the
vast difference in
commercial con-
struction activity
between Colorado
Springs and Den-
ver is similar to
that of each city’s
largest retail corridors, suggesting
that Colorado Springs may have
greater vacancy issues than the
overall numbers indicate.
Colorado Springs has two main
retail corridors – Academy Boule-
vard and Powers Boulevard. Acad-
emy Boulevard’s retail properties
were built during the 1970s and
1980s, while the retail on Powers
Boulevard was built in the mid-
1990s through today. To get the true
vacancy numbers of what is appar-
ent when driving through the two
main retail corridors, I looked at the
vacancy rates reported in Turner’s
year-end edition on individual
shopping centers on Academy Bou-
levard and Powers Boulevard. The
charts show my nonscientific find-
ings. (The numbers do not include
regional malls.)
From a visual inspection of each
of these retail corridors, the vacan-
cy rates on Academy Boulevard are
in excess of the overall stated retail
vacancy rate of 10.2 percent. How-
ever, it is more surprising to see
high vacancy rates throughout the
Central Academy area as well as for
unanchored centers in the North
Academy area. The other revela-
tion according to these numbers
is that the South Academy retail
area, long considered the stepsister
to all north locations, has much
better occupancy than the Central
Academy area in anchored shop-
ping centers and has equal or better
occupancy in unanchored centers
than any other section of Academy
Boulevard or Powers Boulevard.
In general, the newer anchored
retail centers throughout Colo-
rado Springs, built with a much
lower percentage of small retailer
space, are very well occupied with
strong national retailers. The older
anchored centers, built with equal
portions of anchor space and small-
er tenant spaces, are struggling to
find local or national tenants to fill
their vacancies. Unanchored centers
throughout the city are experienc-
ing high vacancy rates as well.
Retail building sales. According
to Turner, 57 retail properties were
sold in Colorado Springs in 2014,
the fewest number of transactions
since 2010. Of the 57 sales, 29 were
sold to investors (not owner/users).
The average price per square foot of
all sales was $92.72.
On a national basis, there is great
demand for quality retail properties
from investors. This has driven cap-
italization rates down to unheard of
levels for quality properties (a low
capitalization rate produces a high-
er sales price). While these ultra low
cap rates are now the norm in the
Denver market, Colorado Springs
is still abundant in higher cap rate
opportunities, getting investors
more for their money.
There are bright spots in the Colo-
rado Springs retail market: Univer-
sity Village on North Nevada Avenue
continues to bring in strong nation-
al retailers. Some of the retailers
are new to the market, like Trader
Joe’s and Bass Pro shops, which
opened in 2014 at Northgate Road
on Interstate 25. The development
is expected to announce many new
retailers soon. Walmart Express is
in the process of opening five new
stores in the market, helping to
absorb several big-box vacancies.
The First and Main development
on Powers Boulevard continues to
attract the highest-quality retailers
to the market.
The overall story in the retail
commercial real estate market in
Colorado Springs is one of opportu-
nity. The day is coming for Colorado
Springs to catch up to the frantic
economic pace of its big brother
to the north. There are opportuni-
ties to purchase existing healthy
retail centers and reposition them
in the market. On the other hand,
there are opportunities to purchase
existing struggling retail properties,
raze them and create entirely new
mixed-use developments. Either
way, there are several opportuni-
ties for investors to purchase retail
properties at great prices relative to
other markets. It’s time to seize the
opportunity.s
Colorado Springs Update
Jay Carlson
Principal,
managing broker,
Front Range
Commercial,
Colorado Springs
Shopping Centers Size Vacant Space Vacancy Rate
53 (anchored) 12,064,000 sf 713,000 sf 5.9 percent
272 (unanchored) 7,603,000 sf 1,286,000 sf 16.9 percent
325 (total) 19,668,000 sf 2,000,000 sf 10.2 percent
Turner Commercial Research vacancy statistics year-end 2014
Academy Boulevard Anchored Unanchored
North Academy 8 percent 23 percent
(Interstate 25 to Union Boulevard)
Central Academy 35 percent 24 percent
(Union Boulevard to Platte Avenue)
South Academy 21 percent 18 percent
(Platte Avenue to Highway 115)
Powers Boulevard Anchored Unanchored
Fountain Boulevard 5 percent 18 percent
to Woodmen Road
North of Woodmen Road 5 percent 30 percent
Carlson’s vacancy rate findings for the two main retail corridors
The day is
coming for
Colorado
Springs to
catch up to
the frantic
economic
pace of its big
brother to
the north.