Skip to main content

Office Sector

A strong recovery in the labor market provided Colorado Springs with a needed boost to the office sector in the last year. To a certain degree, the city is in better shape than most comparable markets and avoided the worst of the disruption that some other areas faced during the peak of the pandemic. While fundamentals are improving, there is still uncertainty surrounding the pandemic’s long-term impact on office space with many employers testing hybrid work models and right sizing their office footprint.

Several quarters of negative net absorption put upward pressure on office vacancies, which peaked at 9.7% in 21Q2. Absorption has returned to positive territory, and vacancies have since compressed to 9.3%. The vacancy rate in Colorado Springs has remained below the national benchmark dating back to 2018, giving landlords pricing power relative to other markets. Rent growth is outperforming the national average at about 4.6% positive annual gains, compared with flat rent gains from the national index.

Real estate in Colorado Springs is drawing significant interest from investors, with the market positioned for growth for a number of years to come. The market experienced outsized deal flow in the second half of 2021. Colorado Springs is an affordable market and has benefitted as some investors have been priced out of core gateway markets. The city has attracted investors in the pandemic era due to its growing population and highly skilled workforce.

COS Office Sector Q1 2022 Full Market Report

Industrial Sector

A boom in consumer spending is boosting Colorado Springs industrial  fundamentals. The pandemic accelerated the rise of e-commerce, but retail sales at brick-and-mortar locations are also rising, leading to increased demand for distribution centers across the city where goods can be stored before reaching the consumer. Retailers and logistics providers are increasing their industrial footprints to improve their distribution networks and bulk up on inventories. Consistent demand, in conjunction with minimal supply pressure, has kept vacancies low near 5.2%.

Amazon positioned itself to take full advantage of the ¬†shift to e-commerce, both locally and on a national scale. The online retailer has aggressively expanded in Colorado Springs, leasing a 4-million SF distribution and sorting center in 2018. The complex, located in the airport’s Peak Innovation Park in the Southeast submarket, delivered in October and is adjacent to a delivery station that Amazon opened in 2020. Amazon plans to hire 1,000 workers at the new location. In total, Amazon plans to hire 2,200 people across the Colorado Springs metro.

With the retail sector facing challenges related to the rise of online buying, retail-to-industrial conversions are gaining traction, though these can be complicated to execute. Amazon has taken over a former Sam’s Club in the East submarket, leasing 135,000 SF in March 2021. Construction on the conversion wrapped up in late 2021.

High demand for industrial product is driving rent growth. Annually, rents have increased by 6.7%. However, the pace of rent growth remains below the national annual average of 10.5%.

COS Industrial Sector Q1 2022 Full Market Report

Retail Sector

Retailers appear to be gaining confidence in the market. A boom in consumer spending was a key driver for the recovering sector in the last year. Personal savings added up during the pandemic as people stayed home, and those savings translated into a substantial uptick in spending. Additionally, fiscal support provided by the U.S. government throughout the pandemic provided consumers with additional funds at their disposal.

Key indicators such as leasing activity, absorption, and asking rents responded with noteworthy improvement. While this bodes well for the local market, many retailers are still struggling to shake off the effects of the pandemic, and the road to recovery isn’t straight forward given that e-commerce continues to cut into market share. But sales at brick-and-mortar locations also rose in the last year, prompting tenants to expand their footprints.

In the past decade, the market has featured a stable and diverse labor market and fast-growing median household incomes that are higher than the national average. Additionally, the presence of several universities and military bases, recreational tourism, and defense contractors traditionally buttress demand for the retail sector. Developers steadily added supply in the last decade due to these factors, although the pace of deliveries did slow leading up to the pandemic.

A compelling demographic story has driven investors to the metro. Sales volume reached a record high, near $410 million, in 2021. Based on CoStar’s Price Index, values have climbed, and cap rates have held relatively steady.

COS Retail Sector Q1 2022 Full Market Report