CREJ - Land and Development - July 2016
Most Colorado Real Estate Journal readers know that the Colorado Springs commercial market has lagged behind Denver since the downturn began in 2007. For those years between 2007 and 2015, job creation was subpar and consequently the demand for new construction in almost all segments also was subpar. In the land market, a large percentage of the transactions that did occur included a lender as the seller. Prices were low and buyers took advantage of the weakened market. Probably the biggest story up to 2014 was the large amount of single-family residential land that had been foreclosed, which was slowly and quietly being absorbed at very attractive prices by homebuilders and land developers as the banks cleaned house. A handful of local players with good foresight took advantage of the situation and built up a solid land inventory that is now paying big dividends in the current robust housing market. As the single-family builders and developers built up their holdings, a healthy market in land sales for apartments and senior housing development also was taking place. Of these deals, the majority on the apartment side have occurred on the north side of the market. Multiple projects have been going up or are in the pipeline, including within the Briargate master plan, along the North Powers corridor, in the Interquest area and adjacent to Woodmen Road. Conversely, only a few projects have been built on the south end of the market, including the submarket in Fountain serving Fort Carson. And while the north end of the city has higher rents, the opportunity remains for any developer that can build a lower-priced product to serve the southern half of the market, including the military communities at Fort Carson and the three Air Force bases. As with most other markets, senior housing development has been active. A handful of large continuing-care retirement communities projects have gone up or are in planning along with individual projects for senior apartments, assisted living, skilled nursing and memory care. These projects have been spread relatively evenly throughout the city. This market remains active. On the single-family side, 2,739 permits were pulled in 2015 (a 23 percent increase over 2014) and all indicators point to between 3,000 and 3,300 for 2016. The average over the last 15 years has been 3,100 starts per year but a closer look shows three different periods with an average of 4,600 for the years 2000 to 2006, only 1,453 for the years 2007 through 2011 and 2,519 from 2012 to 2015. Existing home inventory is at a record low so the expectation is that we will exceed 3,000 starts annually for the next three to five years. Even at this rate, we are only building about 60 percent of the units that were built during the peak years of the last cycle. On the commercial side, things are getting better but more job creation is still needed. There were 8,600 new jobs were created in the last fiscal year compared to just over 46,000 for the same time period in metro Denver. This appears to be in balance in that Denver is essentially five times the size of Colorado Springs. But this is the first year since the downturn began in 2007 that we have held our own. That said, there are high hopes in place for strong job creation near the airport with the newly enacted “Commercial Aeronautical Zone” as well as new employment related to a rapidly growing University of Colorado Colorado Springs campus, a growing sports medicine sector and a cyber security sector that plays off the strengths of the large military and defense contractor components in Colorado Springs. In looking at the growth patterns, they more or less remain the same as they have been for years. Growth is pushing north along Interstate 25, east into Banning Lewis Ranch and Falcon, and southeast into El Paso County and the suburbs of Fountain, Widefield and Security. The north end of the market from Briargate to Monument is seeing solid growth and, not surprisingly, also is seeing the impact of Denver employees moving south to take advantage of excellent schools, dramatically cheaper housing and a commute up I-25 that is easy compared to many in Denver. The east side of the city also is expanding. The Woodmen Heights area and various master plans along the Woodmen Road corridor and Marksheffel Road are building out. Banning Lewis Ranch as well as the Falcon submarket are doing very well. Finally, the Fountain Valley area south and southeast of the airport continues to develop with the most affordable housing in our market. With the residential market expanding, retail developers are following. After a number of years with almost no anchored centers built, 2016 and the next three years finally will see new centers coming out of the ground. Office and industrial continues to lag and rents need to grow before it makes sense to add inventory. However, if 2015’s job gains continue the next few years, there will be demand for new office and industrial product in 2017 and beyond. After an abnormally long down cycle, the worst is behind us. And land prices remain relatively cheap. Apartment land has been trading between $9,000 and $12,000 per door. Industrial land can be had in many parts of the city for under $2 per square foot. Office and retail sites typically range from $3 to $7 per sf; retail pad sites from $12 to $20 per sf. In a nutshell, Colorado Springs remains an affordable community with all the attributes of a medium size city with a world-class city only 50 miles up the road. Our strengths are in a low cost of living, a great quality of life, a beautiful setting below Pikes Peak and a well-educated population. It’s a great city to raise a family. There are issues but, in most cases, they are relatively minor compared with many other markets. We have always been a boom-and-bust economy and for the time being we have gotten past the last bust. For those of us in the commercial real estate market, things are good. We look forward to at least another three years of respectable growth.