Colorado Real Estate Journal - September 2, 2015
Colorado Springs is in the middle of recovery from the 2008 housing-inspired real estate debacle. It is led by the single-family and multifamily housing sectors and by retail, while the office and industrial sectors are lagging. Lack of dynamic job growth is the main issue working against office properties. Also, having a 13.5 percent vacancy rate is dampening interest in speculative office development. The exception is medical office development, which grew in northeast and southwest Colorado Springs. When looking at the industrial sector, an 8 percent overall vacancy rate and a sub-5 percent vacancy for smaller industrial space indicates that new development is in order. However, achievable rental rates are lower than the rates investors need to make an acceptable return. New retail development is occurring in different submarkets. The Sam’s Club and Walmart at South Academy Highlands shopping center triggered additional inline development in the southwest quadrant, and when built out will absorb one of the last major sites in the area. King Soopers is building its first marketplace format at Marksheffel Road and Constitution Avenue, servicing the east submarket. Sprouts announced two stores, one in Northgate and another at Barnes Road and North Powers Boulevard, which will anchor a 20-acre development. While Colorado Springs has not seen the major growth that Denver has, it appears to be gaining ground, especially with a recent development that will spur significant, quality job growth. The approval of a Commercial Aeronautical Zone at the Colorado Springs Airport triggered announcements of major employers at the airport. Sierra Completions announced an $88 million campus, housing 360,000 square feet of hangar, manufacturing and office space, and employing 2,100 skilled craftsmen and engineers who will be customizing and completing wide-body jets from 737s to jumbo jets for governments, potentates, corporations and wealthy individuals. It is likely that all suppliers will be required to have a presence in the market so there will be a substantial multiplier effect. Rampart Aviation announced a significant expansion to its facility because of the CAZ. Global Super Tanker Services recently announced it is going to base its largest U.S. Evergreen 747 Supertanker, a firefighting aircraft, at the Colorado Springs Airport. Because of the CAZ and the central location, it is likely additional firefighting aircraft will be based in Colorado Springs. On the housing side, recent numbers suggest that single-family detached permits continue to improve. The increased permit activity, an improving economy and a dwindling supply of finished lots are driving an increased demand for developable parcels throughout the market. Builders purchased the majority of large bank-owned sites, and the development of future filings of existing communities picked up significantly in the past 24 months. The strongest areas of growth continue to be northern El Paso County and northeast Colorado Springs. Master-planned communities offer significant square footage with close proximity to open space, parks, desirable schools and nearby retail services. The southeast Colorado Springs and Fountain market continues to offer more affordable housing options and we believe that the steady presence of military, in addition to the projected growth of the airport, will drive continued demand in these areas. The local homebuilding community remains cautiously optimistic about a market that has seen a significant decline of foreclosures and steady price gains within the resale market. Colorado Springs has significant new apartment construction, which is driven by low vacancy within existing complexes and continued rising rents. Apartment developers are absorbing desirable infill sites that previously may have been planned for townhomes and condominiums, as well as previously zoned commercial sites. New construction continues to keep up with demand and additional sites are in planning and early construction stages. In addition to the existing and planned projects, we are still seeing new groups enter the market. We are hopeful that with rising rents and projected growth in the Colorado Springs Airport, we will see more projects in the southeast Colorado Springs and Fountain market, where only a few projects have been built in the past 20 years. Also there has been increased activity from senior housing groups offering product types for assisted living, independent living, memory care and age-targeted apartments. The senior housing groups are focused on infill sites that are in close proximity to retail, medical services, hiking trails, bike paths and golf courses. An aging demographic combined with an outstanding quality of life makes Colorado Springs a desirable market for these types of development. The activity we are seeing suggests that the greater Colorado Springs area continues to be a desirable area for all types of development. The preponderance of land sales has been for land that will be put into production in the foreseeable future. There were very few speculative land sales that were prevalent leading up to 2008.