Andrew C. Oyler, Quantum Commercial Group
The Colorado Springs industrial real estate market continues to rebound with a decrease in vacancy to 8.1 percent, an increase in the average asking rate to $6.19 per square foot (NNN) and a net positive absorption of 199,101 square feet. Along with these improvements, there has been a healthy number of owner/user acquisitions in the industrial market that has created a more competitive market for both tenants and owner/user buyers over the past year.
Colorado Springs will also soon benefit from Sierra Nevada Corporation’s recent decision to construct its new $88-million hangar facility at the Colorado Springs Airport, a development that will significantly aid the city’s struggling southeast submarket. Designed as a 90,000-square-foot facility, construction is slated to begin in early 2016. The company estimates it will create about 2,100 new jobs. The city will further benefit from the formation of a new 225,200-square-foot FedEx distribution facility currently scheduled to open in 2016
These new developments reflect the abundance of opportunities and land options near the airport in the southeast submarkets, with available sites ranging from small sites of less than an acre to sites larger than 50 acres. The southeast area also offers a wide range of office/warehouse flex spaces, starting at 1,000 square feet and expanding to more than 70,000 square feet. The area is especially suitable for industrial users due to lower lease rates and stronger tenant/buyer incentives.
While Colorado Springs’ vacancy rate still exceeds the national average of 7.5 percent, the real estate industry anticipates further decreases in vacancy rates as demand for industrial space increases across various business sectors, including the recreational and medical marijuana industry.
The increasingly competitive industrial market is also expected to raise asking rates, particularly for spaces with less than 10,000 square feet, which have become scarce. There may be a transition toward reconfiguring larger space in the near future to accommodate smaller industrial users. Many might also invest in new construction, though new construction often results in higher acquisition costs and lease rates.
Existing growth in northern Colorado has Colorado Springs hopeful it will experience a trickle-down effect as rental rates continue to climb and vacancy rates fall in that northern market. Quantum expects further recovery and renewed strength in the Colorado Springs industrial market for the rest of this year and the next. The expanding needs of current industrial users will push rental rates up and vacancy rates down. Meanwhile, properties will remain much more competitively priced than in larger markets like Denver and the surrounding areas, making Colorado Springs a likely place for industrial users to invest.
By Andrew C. Oyler, Office & Investment Professional, and Taylor Stamp, Associate, Quantum Commercial Group in Colorado Springs. This article originally appeared in the May 2015 issue of Western Real Estate Business magazine.