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Office Sector

Thanks to a strong recovery in the job market since the coronavirus-induced downturn, Colorado Springs is in far better shape than most markets even though supply pressure pushed vacancies to 9.3%. The vacancy rate is projected to plateau in the near term before recovering later in 2022. Rent growth is outperforming the national average, at about 3.0% compared with flat rent gains from the national index.

While a handful of large deals have played a role in the market pre-COVID, much of its improvement came down to generally stronger leasing from  smaller tenants at existing buildings. Although absorption turned negative through mid-2021, Colorado Springs appears to be weathering the storm better than most.

Developers have been wary of testing the waters in Colorado Springs  throughout this cycle, with regional developers focusing almost entirely instead on Denver and Boulder.

COS Office Sector Q4 2021 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 4.9%.

Amazon is positioning 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, preleasing 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 5.9%. However, the pace of rent growth remains below the national annual average of 8.6%.

COS Industrial Sector Q4 2021 Full Market Report

Retail Sector

The Colorado Springs retail market was arguably the hardest-hit asset class following the coronavirus outbreak but is starting to recover from the deepest trenches of the recession. Local retailers were given the green light to operate at full capacity starting in mid-2021, and 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. The omicron variant is posing an additional risk of upending momentum.

Even as Colorado Springs deals with store closures like most metros due to the pandemic, a number of tenants are still leasing space here. 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 $400 million, in 2019. Based on CoStar’s Price Index, values held steady, and cap rates ticked up slightly. Investment has slowed since the highs experienced in 2019, although deals are still being signed.

COS Retail Sector Q4 2021 Full Market Report