Colorado Real Estate Journal - September 2, 2015
The El Paso County land market continued its upward momentum from 2014 through the end of second-quarter 2015. The Colorado Springs real estate market is becoming one of the best values in the state, as Denver and Northern Colorado are considered two of the best real estate markets in the U.S. With the recent announcement of minimum cutbacks in the local area’s military, the outlook for El Paso County remains positive. Colorado Springs is a stable apartment market with vacancy dropping to 4.6 percent, and there is little chance of oversupplying the market with new apartment projects. A number of market studies show a need for 400 to 600 units per year. Construction is underway on over 1,800 new apartment units, nearly all of which are located north of Woodmen Road and will enter the rental market in mid-2015 and 2016. Additionally, there has been a recent surge in activity from out-of-state and Denver apartment developers for land positions for large (150-plus units) and small (50 units or less) future apartment projects. The majority of the activity continues to be in north El Paso County with the exception of the area around the University of Colorado Colorado Springs, which continues to expand quickly. Single-family permits surpassed 2014 year-to-date numbers by 2.3 percent through second-quarter 2015. The majority of homebuilders and developers seem optimistic that the number of single-family permits will exceed 2,439 from 2014, with the possibility of at least a 10 percent increase this year. However, this may be difficult to achieve as the finished lot inventory was reduced due to development delays involving contractor and labor shortages, and the unprecedented volume of rain since late April. The residential lot and land market continues to be most active north of Woodmen Road to Highway 105 in Monument because of the availability of approved projects, existing infrastructure and emergence of Denver-employed consumers considering living in northern El Paso County. The market area south of Platt Avenue toward the city of Fountain continues to struggle. This trend is expected to continue at least through this year because of the desirability and stability of the northern Springs markets and the southern market’s limited land opportunities for affordable housing and high municipality permitting fees. Sales of entitled undeveloped land for single-family lot development continues to pick up momentum since last year, as homebuilders aggressively secure land positions to provide lot inventory for late 2015 as well as 2016 and 2017. There is less than a 12-month supply of finished lots throughout El Paso County in the desirable $350,000 and under housing market price points. The market is expected to get tighter over the next 18 months because of the extended time frames (nine to 15 months) for entitlement approvals and development, and limited development funding through traditional lenders. Finished residential lots of approximately 6,000 square feet sell for between $60,000 and $85,000 in the East Woodmen Road and North Powers Boulevard area. By comparison, a 6,000-sf lot sells for between $45,000 and $55,000 in the market area south of the airport. Out-of-town investors and land developers showed more interest in Colorado Springs over the past six months because the Denver metro area is saturated with investors. A lack of financially feasible investment options in markets like Denver and Northern Colorado increases activity in nearly all areas of El Paso County’s land markets. This also results in price increases in residential and retail land. Development costs, vertical construction costs and labor costs are leveling off after substantial increases of 20 percent or more during the past 12 months, which helped increase land prices. Many developers and investors are focusing on longer-term land positions as confidence continues to grow with the stability of the Colorado Springs market. Construction defect liability lawsuits on for-sale multifamily housing is the primary deterrent for many builders offering this type of product anywhere in Colorado. However, builders are looking closely at paired single-family housing because of the need to deliver more affordable housing and the limited options available in the single-family housing market. There is pressure mounting in the Denver and Northern Colorado markets for more affordable housing and I believe a change to the state law would provide the necessary modifications to relieve this pressure. It is possible that the law could be changed next year, which would quickly expand this category. Two bright spots in the commercial land market are the expansion and development of new retail shopping centers, and the sale of land to developers and users for medical services. The latter is expected to increase in the near future because of the current changes in how medical office property will be acquired and managed. With continued improvement and confidence in a steady economy, many retailers are expanding and opening new locations in Colorado Springs. The addition of new, well-planned and well-located shopping centers assisted moving this market segment forward. University Village, First and Main, Interquest Marketplace, Briargate Crossings and Polaris Pointe at Northgate are examples of the retail trend. These shopping centers have attracted new retailers to the market with numerous freestanding buildings at each location with per-sf land prices approaching levels last seen between 2003 and 2007. Retail pad sites at A locations are priced at $15 to $23 per sf. Industrial and office land continues to lag behind historic levels and both categories are expected to do so for the foreseeable future. End users are the primary purchasers, and pricing for industrial and office land is expected to recover slowly.