The Colorado Springs office and medical office market continues to heat up with the summer months — with the number of vacancies down and rents going higher.
That’s the news from Cushman & Wakefield’s second-quarter office real estate report — which notes that the market saw a total of more than $27.7 million in commercial real estate sales and seven new lease transactions during the first two quarters of 2016.
Buildings sold were: 1050-1090 Newport Road for $8.2 million; One Gateway Plaza at 1330 Inverness Dr. for $7.7 million, 9910 Federal Drive at $6.1 million and Academy Corporate Center for $5.4 million. All four properties sold to investors.
The commercial real estate firm also reported leases to Penguin Random House, Pikes Peak Urology, ExoAnalytic Solutions, Land Title Guarantee Company, Sorenson Communications, Healthcare Partners Colorado and Fairway Independent Mortgage.
“Despite the statistics, which show a slight increase in the total market vacancy from the beginning of 2016, the market is experiencing robust activity and lease rates are increasing,” the company said in its report. “We expect the year to end with significant positive absorption, reduced vacancy rates, and a healthy increase in lease rates.”
The current office vacancy rate is at 20.08 percent in El Paso County, which means the city won’t see any new office construction in the near future. But the real estate firm believes that the amount of high-quality office space is “quickly diminishing.”
“With overall activity in the market being strong, and with a more limited supply of space in the higher quality properties, prospective tenants don’t have as many alternatives and many are having to take space in older, mid 1980’s generation properties,” the report said. “While many of these properties have undergone improvements to bring them up-to-date with more modern buildings, we see a growing need for new construction to occur to deliver the quality of space corporate America is requiring, and with lease rates increasing the cost of new construction can be supported.”
Vacancy rates were up slightly during the second quarter, but the Cushman & Wakefield report believes that the increase is merely an anomaly from a few buildings losing larger tenants. The group says the majority of multi-tenant buildings have not seen a change — or have fewer vacancies.
“The market will continue to see decreasing vacancy but until we have new companies relocating or starting up in Colorado Springs our vacancy will continue to decrease modestly,” the report said.
And some properties are responding to a tighter market with fewer options by pushing lease rates up. Again, the report said older buildings pull the average down.
For the past six quarters, medical office buildings have seen improvements in leasing levels, the report said. As of the second quarter of 2016, the medical office vacancy rate is 9.6 percent.
“The leasing activity continues to be steady – but not yet what we would categorize as exceptionally active,” the report said. “However, a primary force driving the market to stabilization is the market was not overbuilt during the 2008 downturn and existing construction was of high quality which has seen the majority of lease activity resulting in a decrease in vacancy and increased lease rates, with the average cost per square foot at $16.21.”