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Colorado Springs’ CRE Markets Look Strong, Says CBRE

COLORADO SPRINGS – According to CBRE’s latest H1 MarketView reports, Colorado Springs’ retail, office and industrial markets performed positively in the first half of 2018. The retail sector saw a significant amount of space delivered to market and healthy positive absorption that served to offset store closures by two big-box retailers in the first half of the year. Colorado Springs’ office sector saw vacancy drop, reaching its lowest level in the post-recession period. Vacancy also decreased in the industrial sector as tenants occupied 131,040-square-foot 2570 Zeppelin Road, the largest industrial project of this business cycle.

H1 2018 Retail Sector Highlights

  • Direct vacancy declined from 6.6 percent in H1 2017 to 6.3 percent in H1 2018.
  • Healthy positive absorption helped to offset store closures by two large big-box retailers in the first half of the year.
  • The average direct asking lease rate was $13.44 per sq. ft. NNN at the end of Q2 2018 – an $0.11 decrease from Q4 2017, but a year-over-year increase of $1.19.
  • After a record amount of retail space delivered to the market in 2017, construction activity increased from year-end 2017 to have 255,256 sq. ft. in development at the end of Q2 2018.

“The performance of the Colorado Springs retail market in the first half of the year can be characterized around two key trends: new construction and restaurants. We are seeing exciting new retailers enter the market, attracted to the high-quality new construction projects primarily in the northeast. We are also seeing increased demand for food options, with restaurants playing an integral role in the new development projects. In addition to the northeast, there is a lot of revitalized interest in the downtown core, bolstered by the Olympic Museum and the newly announced Switchbacks stadium and CC Tigers Hockey Stadium. Overall, Colorado Springs’ retail market is performing well, with the entire sector benefiting from our city’s population growth and active housing market,” said Whitney Johnson, an associate with CBRE in Colorado Springs.

H1 2018 Office Sector Highlights

  • Vacancy continued to drop, reaching its lowest level in the post-recession period – dropping to 9.4% in Q2 2018.
  • Strong leasing activity drove positive net absorption of 193,053 square feet in the first half of the year.
  • The average lease rate increased to $12.47 per sq. ft. NNN, up 2.9% year-over-year.

“The office market is continuing to gain strength. There have been very few deliveries of multi-tenant properties in the last several years, so as companies have expanded and moved to Colorado Springs, vacancy rates have declined. This has led landlords to raise their asking rates, and more often than not, they are able to achieve the higher rates. We expect the second half of 2018 to continue to improve and are interested to see how the market will absorb the new 100,000 sq. ft. office building that is anticipated to deliver next year at Victory Ridge. That will tell us a lot about the strength of the market,” said Jared May, a senior associate with CBRE in Colorado Springs.

H1 2018 Industrial Sector Highlights

  • The direct vacancy rate continued to decline significantly, down 222 bps from 10.4% in H1 2017 to 8.2% in H1 2018.
  • Market absorption was driven by the newly delivered 131,040-square-foot building at 2570 Zeppelin Road.
  • Lease rates continued to rise, generally due to the demand for large, quality industrial and flex space.
  • Two projects delivered, adding 143,040 square feet of warehouse space to the market.

“The industrial market showed a good amount of momentum in the first half of the year, and we are on track to have our best annual net absorption in a decade. Quality space is at a premium. We expect the second half of the year to mirror the first half, as we continue to see increased demand from industrial warehouse and flex users. We expect vacancies to continue to decline and rates to increase steadily,” added Mr. May.

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