CREJ - Multifamily Properties Quarterly - April 2015
In March, the U.S. Bureau of Labor Statistics released revised job growth numbers indicating that nearly 4,900 jobs were created in Colorado Springs in 2014. This translates to a 1.9 percent employment growth rate, which is much closer to the state average and the Denver job growth. These revised results coincide with Colorado Springs’ current business regulations that are among the most favorable in the country. In fact, Colorado Springs ranked No. 1 in several national rankings of small-business-friendly cities. It is encouraging to see these favorable policy decisions attract quality employers and produce the volume of job growth that many have been anticipating. These revised job growth statistics also intuitively correspond with Colorado Springs’ production in terms of apartment fundamentals. During third-quarter 2014, vacancy reached its lowest level since 2001 at 4.71 percent. The market also saw remarkable year-over-year rent growth, with average rents increasing 7.1 percent during fourth-quarter 2014. In order for the city to maintain these optimal conditions for apartment owners, continued job growth will be a critical component. During first-quarter 2015, Colorado Springs experienced several exciting developments that may be the final boost to stabilize these apartment fundamentals into the foreseeable future. In February, Colorado Springs received invigorating news that many are considering the most significant development for the local economy in the past 25 years. A subsidiary of Sierra Nevada Corp. recently selected the city for an $88 million facility that it anticipates will contribute billions of dollars to the local economy. The company plans to employ more than 2,100 people over the next five years with an average annual salary of more than $80,000. Maybe the most exciting news of all is what this new facility will be producing. The facility will be transforming the interiors of wide-body aircrafts into flying offices for high-end corporate customers. Sierra Nevada Corp. chose Colorado Springs over cities in South Carolina because of favorable tax regulations that are estimated to save the company $357 million. Colorado Springs Mayor Steve Bach compared the announcement to the impact that Apple and MCI had on their locations in the early 1990s, and believes Sierra Nevada’s new facility will have a similar economic impact. While this may be some of the best news for Colorado Springs in a quarter century, Sierra Nevada’s announcement may be just the beginning. This news has the potential to spark additional developments and attract other businesses that would launch aviation into the city’s top industries. Sierra Nevada’s news may increase the probability of Colorado Springs landing an additional contract that would bring a $300 million space-training facility to the Colorado Springs airport business park. The airport itself has long been the second busiest in the state, serving over 2 million passengers annually. It also offers nonstop service to 16 cities and handles approximately 110 arrivals and departures daily. Many defense contractors already have realized the value of centering their operations near the airport and Peterson Air Force Base. Currently there are 3,500 workers in the defense industry near the airport. Some of the most significant employers include Northorp Grumman, Vectrus, ITT Industries, Integral Systems Inc. and Delta Solutions. Delta Solutions, through a joint venture with Apogee Engineering, recently secured an $800 million defense contract that should add more jobs to the Colorado Springs economy. Currently, ARA is marketing two properties that look to directly benefit from this boost in job growth near the airport. Western Hills and Landings at Aero Flats are two apartment communities that are within minutes of the Sierra Nevada Corp. development and additional businesses that are expanding near Colorado Springs Municipal Airport. Several investment groups expressed interest in these assets primarily because of the recent developments and the potential for continued job growth. The opportunity in the aviation industry also sparked development opportunities in downtown Colorado Springs. The O’Neil Group plans to open the Catalyst Campus this summer on the southeast side of downtown. A key component of the campus will be focused on luring existing aerospace companies and defense contractors to relocate to Colorado Springs and its smallbusiness-friendly climate. In addition, the facility is designed to act as a breeding ground for some of the industry’s top talent by providing on-the-job education and training that younger professionals will not find at colleges and universities. One of the campus visionaries, Frank Backes, CEO, Braxton Technologies (part of the O’Neil Group) describes the community as an avenue that could redefine the city’s identity. “We want Colorado Springs to be branded as the place to do command and control, satellite operations, and satellite design and manufacturing,” said Backes in a recent newspaper article. While the aerospace industry has significant long-term potential, additional blue-chip companies have already reinforced their confidence in the Colorado Springs economy. Progressive Insurance recently added over 100 workers to the Colorado Springs workforce. In January, FedEx broke ground on a $20 million distribution center that will be triple the size of its current facility. In February, Home Depot announced the hiring of an additional 350 workers in its five Colorado Springs stores. After adding 250 workers in 2014, T-Mobile plans to hire an additional 100 employees this year. These announcements, along with the developments in the aerospace industry in the first quarter of the year, bode well for an even stronger year for Colorado Springs employment growth in 2015. If the city continues to capitalize on this recent job growth momentum, apartment owners are poised to benefit with an expanding pool of qualified renters for years to come.