CREJ - Retail Properties Quarterly - February 2018
Last year was another year of recovery for the entire Colorado Springs market and, specifically, in the retail segment of the commercial real estate market. Retail development follows rooftops, specifically new rooftops. Most cities on the Front Range of Colorado grow to the east, as the mountains define the limits of development to the west. In addition to the western boundary, Colorado Springs has an eastern boundary known as the Banning Lewis Ranch, a 30,000-acre property that has changed hands and been divided over the years, but which still is predominantly undeveloped. This has caused home developers to hopscotch across this property to the east and build in the Falcon area. Over the last 15 years, this area has grown dramatically with hundreds of new rooftops and the retail development to follow it. Residential development on the east side of Colorado Springs has filled in against the western boundary of the Banning Lewis Ranch property, which is generally defined by Marksheffell Road running north and south the entire length of the city. The Banning Lewis Ranch property will define the residential growth of Colorado Springs for the next 50 years. Infrastructure costs have been the prohibiting factor in developing this property, but city and county governments are trying to make changes that will allow this property to be developed and provide adequate infrastructure. So, most of the new residential development in the last few years in Colorado Springs has taken place at the north and south ends of Colorado Springs as well as in the last few undeveloped parcels on the east side of town, and retail has followed. King Soopers opened one of its new “super” stores at Marksheffell and Constitution in 2017, which was one of the only anchor retail stores to open last year. Other areas of new retail activity took place along the north Powers Boulevard corridor between Constitution and Briargate Parkway; along Interstate 25 at the Interquest exit around the new Great Wolf Lodge redevelopment; and at the Northgate exit around the Bass Pro Shop in the Polaris Point retail development. An urban renewal project on South Nevada Avenue south of downtown is starting to open new retailers and redefining the area with trendier residential redevelopment coming as well. Downtown is seeing a resurgence of development, with Oscar Blues opening its new restaurant, while the Atomic Cowboy, Denver Biscuit Co. and Fat Sully’s New York Pizza are coming to the Trolley Garage redevelopment on South Tejon Street. The U.S. Olympic Hall of Fame is under construction west of downtown and there are more than 600 residential units in the pipeline in the downtown area. 2017 Colorado Springs general market statistics • Population of Colorado Springs: 465,000 • Population of the Colorado Springs metropolitan statistical area: 698,000 • Total home sales: Up 7 percent over 2016, while 2015 and 2016 were both record years. • Single-family new construction permits: 3,405 permits, up 8.2 percent over 2016 • Unemployment rate: Less than 4 percent • Overall average commercial vacancy rate: 7 percent • Overall average commercial lease rate: $12.48 per square foot, triple net • Retail absorption in 2017: 355,000 square feet • Apartment vacancy rate: 5 percent In 2017, retail development led the way in new commercial structures. Most of the new development was in smaller multitenant buildings and most of the new tenants were fast-casual restaurants either new to the market or expanding after an entry in the last few years. Vacancy rates in retail centers is 6.5 percent in anchored centers and 14 percent in unanchored centers. Average retail rents have broken the $12 per square foot, triple-net mark for the first time since 2009. Many older centers that sold recently are being refaced and redeveloped to accommodate the shrinking demand for retail. In 2017, Chapel Hills Mall at the north end of Colorado Springs went into foreclosure, reflecting the changing status of the national demand for brick-and-mortar retail centers. In 2017, only two retail properties over 100,000 sf sold in the area, but more than 23 properties under 100,000 sf sold. Capitalization rates on retail properties have been falling here; cap rates were about 8 percent in 2016, 7.5 to 7 percent in 2017, and will be in the 6’s in 2018. Even in the 6 percent range, cap rates in Colorado Springs offer a 1 to 2 percent benefit to those currently available in the Denver retail investment market. Experts say there is only a 15-day supply of residential inventory in Colorado Springs. Our retail vacancy rates are approaching 5 percent on average. Denver workers are buying homes in the Colorado Springs area and commuting to their jobs because of home prices in Denver. There is an abundance of opportunity for retail developers and residential developers in Colorado Springs in 2018 and into the next decade. But do you know what Colorado Springs residents are most excited about in 2018? In-N-Out Burger is opening its first Colorado location here this year.