Office Sector
The Colorado Springs office market is facing demand challenges. However, as of the third quarter, trailing 12- month absorption bounced back into positive territory, amounting to 170,000 SF. Vacancies have decreased by half a percentage point in the past year to 10.1%. Still, the vacancy rate remains near the highest to be recorded dating back to 2014.
To a certain degree, the city is in better shape than most comparable markets and has avoided the worst of the disruption that most other areas are facing due to changing office utilization patterns, and vacancies remain below the national benchmark of 13.8%. With no projects under construction, the market has no supply-side risk in the near term, which should help in keeping vacancies in check. According to CoStar’s Base Case forecast, vacancies in Colorado Springs are projected to remain relatively flat going forward, while national vacancies are projected to continue rising through 2026.
Rent growth is outperforming the national average at about 2.4% positive annual gains, compared with 1.1% rent gains from the national index. However, when adjusting for inflation, real rent growth continues to trend negative. 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.
Industrial Sector
Demand in the Colorado Springs industrial market has been steady over the past few years, driven by aerospace, defense, manufacturing, and cybersecurity. The vacancy rate sits at 4.6%, below the national average of 6.6%. Annual net absorption amounted to 400,000 SF. The market has limited supply-pressure with space under construction amounting to 500,000 SF, representing just 1.2% of current inventory.
E-commerce is booming, but retail sales at brick-and-mortar locations have also risen, 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. Tenants have spread out across the market, but East Colorado Springs, near the airport, continues to drive the majority of logistics demand.
While demand has held steady, rent growth has decelerated in the past year to just 1.7%. Rents have held up best in Teller County and Southeast Colorado
Springs. The pace of rent growth remains below the national annual average of 3.8%. CoStar’s base case forecast projects annual rent growth to increase by 1.1% in 2024 before rebounding in 2025.
Retail Sector
The Colorado Springs retail market remains in a position of strength. With 57,000 SF delivered in the past year and another 260,000 SF under construction, the supply pipeline is beginning to put upward pressure on vacancies. Still, the vacancy rate remains near historic lows at as of the third quarter.
Average triple net asking rent now sits at $20.00/SF. Rents are projected to continue decelerating over the coming quarters, and inflation is expected to weigh on the real rate of rental growth, likely keeping it in line with or slightly below the average growth rate seen during the five years preceding the pandemic.
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.