CREJ - Multifamily Properties Quarterly - January 2015
In the past four years, Colorado has gained national attention as one of the most attractive apartment markets in the country. Denver established itself as a premier market with favorable apartment fundamentals, consistent employment with a stable economy and a vibrant downtown with social attractions. We’ve projected that Colorado Springs would soon follow suit and establish itself as suitable alternative for both investors and renters. These projections are now a reality, as we’ve seen Colorado Springs begin to realize its potential. Looking back at 2014, Colorado Springs benefited from record-setting apartment fundamentals, vastly improved employment and economic condition, and received national recognition with city attractions. These recent developments led to a truly remarkable year, with 2014 producing the most apartment sales, by total sales volume, in Colorado Springs’ 128-year history. Stable Apartment Fundamentals At the end of third-quarter 2014, market vacancy reached a level not seen in Colorado Springs in 13 years at 4.79 percent. Market rents also grew at the fastest rate in the past eight years at 5.9 percent year over year. Much like Denver, Colorado Springs’ vacancy tightened and renters have few options as units turn over. Owners quickly capitalized on the competitive vacancy and pushed rents aggressively. New investors are seeing this rent growth and have bought in at a price point that is well below what is available in Denver. Equally important, Colorado Springs still remains an affordable option for renters in comparison with Denver. Historically, we’ve seen about a 10 cent to 15 cent gap in average market rents per square foot between metro Denver and Colorado Springs. In third-quarter 2014, the spread has more than doubled to 35 cents per sf. As cost of living continues to increase in Denver, many renters will consider moving to Colorado’s second-largest metropolitan city. All of these factors contributed to the ideal market conditions that we’ve known Colorado Springs is capable of producing. Improved Employment and Stable Economy Colorado has remained one of the nation’s leaders in decreasing unemployment rates. Colorado Springs followed the state’s lead with current unemployment rates hitting a five-year low in February 2014 at 7.5 percent. Despite these favorable developments, some still fear that Colorado Springs will remain unstable with future military cuts, and base realignment and closure. Fort Carson remains a national focus because the single base has doubled in size over the past 10 years. In previous base realignments, Fort Carson benefited with a net gain and received additional troops from other bases around the country. The strongest example of the country’s continued confidence in Fort Carson is the $242 million approval for military construction for new facilities that was announced in January 2014. These facilities will be instrumental in supporting the now fully operational Fourth Infantry Division, Combat Aviation Brigade. This budget represents more construction funding than any other base in the nation. In addition, according to the military’s most recent BRAC report, Fort Carson was ranked sixth out of 88 bases in the country in terms of strategic importance. Clearly, the Army views Fort Carson as a staple instillation. As a result, Colorado Springs’ economy should remain stable even as the military reduces its international footprint. Significant City Attractions In 2014, Colorado Springs received national attention for its city attractions. In February, Golf Magazine named The Broadmoor resort and hotel the top golf resort in North America. The website Trip Advisor recently ranked Garden of the Gods the top park in the country, ahead of Central Park, New York, and Millennial Park, Chicago. Trip Advisor also ranked Cheyenne Mountain Zoo as the fifth-best zoo in the country. Tourism remains a critical driver of the Colorado Springs economy and the state of Colorado has recognized the Springs’ potential and provided support for continued development. The state recently backed Colorado Springs’ City for Champions by awarding $120.5 million in state funds for a downtown sports stadium, U.S. Olympic Museum, a new sports medicine and performance center, and U.S. Air Force Academy visitor’s center. The Olympic Museum has international implications – increasing tourism from around the world. These four projects have the potential to reinforce an already strong Colorado Springs tourism industry, similar to the impact that Coors Field had in revitalizing downtown Denver. All of these factors have led to an ideal environment for a record setting year in terms of apartment sales. At the end of 2014, total sales volume for Colorado Springs exploded to $484.4 million. To put this number in perspective, 2013 saw a total sales volume of $171.337 million – making 2014 nearly $315 million above the previous eight-year average. This is all the more impressive when considering 2013 saw the largest apartment transaction in Colorado Springs history in both total price and price per unit in the sale of the Alexan at Briargate. Since December 2013, ARA has seen three record-setting transactions in addition to the Alexan at Briargate. At the time of sale, Spring Canyon sold for the highest price per unit for any 1990s construction in the Springs’ history. Copper Chase achieved the second-highest price per unit for any 1960s construction. With these new standards recently set, the Colorado Springs apartment market looks to have truly arrived and projects very well for an equally promising year in 2015.