CREJ - Retail Properties Quarterly - November 2016
There have been some pretty impressive national rankings and headlines for Colorado Springs over the recent years. A few include being named the fifth-best place to live by U.S. News and World Report; No. 1 “Big cities to live in,” according to Money; No. 5 “Best Cities to Live, Work and Play,” according to MSNBC; and No. 9 on America’s best bang-for-the-buck cities and No. 10 “Best Places for Business and Careers,” according to Forbes. Please refer to Chart A to summarize these findings. By the way, we also were recognized for top 10 cities for best teeth, but that’s just heaping it on … but it’s true. We are a very proud city that is in the midst of one of the most exciting times since I have lived and worked here. We have put together the strongest, most cohesive unit of governing bodies and citizen efforts, which has resulted in tremendous new growth and revitalization in key areas of our community. I have been a resident of Colorado Springs since attending Colorado College in 1978. I began my commercial real estate career in 1983 and have seen the city grow from approximately 215,000 people to almost 500,000, with close to 700,000 people living in El Paso County. We have always been a city blessed by our close proximity to Pikes Peak and the Front Range. Not too many cities can boast a drive (or bike ride) that is literally minutes to work or the mountains. But tremendous views are not enough, and more people means a little longer drive time. In the past few years, we took some of our core strengths and are implementing plans to maximize them. One example of this is our long-standing association with the U.S. Olympic Committee. The committee’s headquarters have been relocated to the heart of downtown with a long-term commitment and we have rebranded Colorado Springs as “Olympic City USA.” We also are close to completing the funding for a new 60,000-square-foot Olympic Museum that will be located on the southwest side of downtown and open in 2018. This state-of-the-art facility will generate other commercial redevelopment for downtown and be another significant tourism draw for Colorado Springs. Further north, the combined efforts to redevelop North Nevada Avenue with the creation of an urban renewal district spurred the tremendous growth of the University of Colorado Colorado Springs. Since 2006, UCCS has almost tripled its enrollment and constructed numerous buildings on its 500-acre campus. While on the opposite side of Nevada Avenue, developers turned one of our city’s most degenerated areas into one of the city’s most significant and successful retail developments: University Village Colorado. On the south end of Nevada Avenue, south of downtown, another long-awaited redevelopment effort has begun. Multiple new retail, restaurant and residential developments will replace old and, in some cases, abandoned properties. This area has been very attractive to retail and restaurateurs alike but there simply haven’t been properties available that would interest them. The 2008 downturn – well OK, more like a bungee jump – definitely impacted our retail market. However, Class A retail never took a very big hit with market rents and vacancies dropping only slightly. Class B and C retail properties were hit hardest and really only started to feel the positive effects of a market recovery last year. This year, retail vacancy has dropped to 9.2 percent, the lowest in eight years, while lease rates are at the highest average since 2008, according to Turner Research. Last year we saw a significant uptick in new commercial development. This has been fueled by record-setting home sales, consistent year-over-year city sales tax increases and significant job growth. This produced our lowest unemployment rate since 2006, currently at 3.9 percent, which is significantly better than almost 10 percent at the start of 2011. The pace of homebuilding through the first half of 2016 is at a 10-year high. Not surprisingly, new commercial development generally follows where the new homes are being built; primarily north and east of town. Also, historically, the highest average incomes have been in the southwest end of town, but over the last 10 years, with the growth north, the highest average income levels are now on the north and east ends of Colorado Springs. The challenge from a retail or restaurateur’s perspective is while incomes increase the further north you go, the population counts decrease. So some of the areas where new commercial properties are being developed do not have the densities retailers typically want. For those areas, it is important for businesses to go in with the capability to wait for the market to catch up, while hopefully reaping the benefits of being “first in” and establishing themselves. The challenge from a developer’s perspective is keeping the rental rates at levels that are sustainable for businesses, given the high costs for land and construction costs. Certainly helping this are the low interest rates still available. Also, fueling some of the new developments are the high number of restaurants coming into our market. Most of these are fast-casual concepts such as Tokyo Joe’s, MOD Pizza, Dickey’s BBQ, Pie Five and Jersey Subs. These restaurants want highly visible, convenient locations with end caps and some with drive through capability. This has resulted in the development of a number of smaller strip centers in areas such as Interquest Parkway and Interstate 25, Powers Boulevard and Dublin Boulevard, and Northgate Boulevard and Voyager Parkway. Most of these projects are on the north or northeast side of Colorado Springs. We also are starting to see a few developments with more traditional design driven by grocers. Sprouts Farmers Market is opening two stores in newly developed centers at Powers Boulevard and Barnes Road, and at Northgate Boulevard and Voyager Parkway. Kroger is opening a new King Soopers Marketplace, double the size of its normal store, at Constitution Avenue and Marksheffel Road. The future for Colorado Springs commercial real estate market looks to be very good. These developments comprise the largest amount of retail development in Colorado Springs for nearly the last decade and the next few years look to continue that trend. While there is much more to be said, I think, the best summary is to refer to chart A.