Commercial real estate in Colorado Springs is coming back, with downtown office properties’ occupancy and lease rates remaining more stable and consistent than other sectors.
“It’s a fairly small marketplace, and the profile of users downtown is also stable — accountants, law firms, investment firms. The type of tenant that wants to be downtown has a long-term perspective,” said Greg Phaneuf, principal of Colorado Springs Commercial. “The overall downtown market still remains fairly healthy.
“Overall, we’re seeing the market rebound. We are seeing lease rates escalate. We’re seeing vacancies go down.”
Denver’s commercial real estate market has been “on fire, and we have been waiting for that to occur,” Phaneuf said. “We’re seeing indication that that’s going to happen this year. We tend to see things before it’s felt by the community. People are leasing space, and seeing companies be bullish and planning for more space bodes well for our community and job market.”
Currently trending, owners are asking for higher lease rates, while users are seeing the market as still being soft.
“The expectations of both tenants and owners are different,” Phaneuf said. “They [tenants] are not going to get everything they want. In the last five years, they’ve become used to getting sweetheart deals.”
Kinder Morgan’s vacating of a third of the office space at Colorado Square, 2 N. Nevada Ave., has created a 70,000-square-foot opportunity for another company to rent downtown.
“Colorado Square is going through an exciting refresh, which is indicative of exciting things happening downtown,” said Brad Bird, director of brokerage for CBRE, Inc. Downtown properties that have been well-maintained continue to rent well, Bird said. Vacancies are seen in properties that have been poorly managed or are simply old. “There’s a reason they’re vacant,” Bird said.
Randy Dowis, principal at NAI Highland, said the trend for vacancies downtown “is definitely down, especially for office. We don’t have much of a retail base. We need a lot more retail and housing for downtown.”
Some “unconventional” businesses have moved downtown, Phaneuf said, “software companies that you more typically would find in the suburban market. Tenants downtown like the ability to walk outside, have a place to eat and grab a cup of coffee nearby, versus suburban, where you have to get in your car and leave for that.”
Another dynamic that may change the face of downtown is the proposed stadium with City for Champions.
“I think industrial will be disappearing in downtown” because property owners there hope to provide property for the stadium, Dowis said.
If built, the stadium will spark more commercial development, Bird said.
“City for Champions has the potential to have a dramatic positive impact on our downtown, on real estate and development and on culture and community,” Bird said. He added that when museums are paired with event centers, ancillary businesses grow and develop with them.
“If that development is done properly, you’ll see a significant change in retail, office, hospitality, entertainment and other forms of real estate that enhance the live-work-play, design-style community.”
“City for Champions is probably the most exciting thing to happen in Colorado Springs in a decade, probably two decades,” Dowis said.
To attract and keep young professionals, “Our downtown needs to take a proactive approach … for the live-work-play environment that the workforce is looking for,” Bird said. “I’m excited to see the Blue Dot apartments going vertical. It’s exciting to see the Catalyst Campus and former Gazette property being repurposed and reused.”
“We’ve seen groups come in who are denser users — BombBomb, Insurance Technologies, Colorado Springs Health Partners. CSHP has been here but has expanded,” Phaneuf said. “In some ways, there are some office users that are making that decision [to move or expand downtown] because they’re cognizant of what their employees want.”
Other areas, north, east
North of Colorado Springs is seeing healthy growth, Phaneuf added: “The fourth quarter in 2014 was as active as I can remember in 20 years in the business.”
The newer, higher-quality commercial real estate in northern Colorado Springs is in high demand, he added.
“Same as out by the airport. Newer developments on Powers [Boulevard] tend to outperform the older properties on Academy [Boulevard],” Phaneuf said.
News regarding Sierra Completions’ bid to build a manufacturing center by the airport will spark more development there.
“Undoubtedly, there will be more announcements coming on the heels of that announcement. I think you’re going to see a lot of new things out at the airport,” said Dowis, adding that new construction by the hospitals and the University of Colorado Colorado Springs will also spark more development there, he said.
“We’re not at a point where lease rates can substantiate new construction,” downtown, Phaneuf said. “We’re going to have to see lease-up and absorption of the existing space, which will then drive lease rates up.”
The cost for new construction would dictate a lease rate of the low $20s range per square foot, he added. The current downtown rates average between $14 and $20, he said.