The Colorado Springs commercial real estate market continued to grow stronger throughout the third quarter of 2016 and has been bolstered by banner years for the local hospitality and tourism industries, according to industry experts.
Reports published last month by Colorado-based real estate firms Turner Commercial Real Estate and Transwestern painted an optimistic picture of the local commercial market as a barometer for an increasingly strong regional economy supported by local industry.
“Historically, Colorado Springs lags behind national recoveries; however, it appears that we are seeing a local recovery taking hold,” according to Turner Commercial Research’s Commercial Availability Report for Q3 2016. “The Colorado Springs area is finally entering a period of sustainable recovery and growth.”
The Transwestern report indicated that most of the sector’s rental rates continue to increase, vacancy rates continue to decrease and commercial construction and sales both remain strong.
Local industry experts have attributed much of the region’s growth to “spill-over” from Denver.
“I think the market is really strong right now,” said Tim Leigh, a partner at local commercial real estate firm Hoff & Leigh Inc. “You’ve got to believe that we’re starting to get some of that overflow from Denver, because it is so expensive up there.”
But a large part of that growth can also be attributed to the hotel market, which some say is as healthy as it has ever been.
“Colorado Springs is in the midst of its best-ever performing hotel market on the heels of a summer of record-high occupancies and room rates,” said Jeffrey Duni, vice president of Hospitality Real Estate Counselors, in a recent Colorado Real Estate Journal column. “It’s helpful to place the Colorado Springs market into context with the Denver market, as the evolution of the Springs in terms of hotel real estate investment, overall tourism and macro-economic factors is relevant to what’s happening in Colorado’s largest metro to the north.”
According to Duni, there has been $75 million in hotel real estate transactions in Colorado Springs since January 2015, with another $45 million in pending sales. He also said the growth in revenue per available room in Colorado Springs has outpaced that of Denver in the past 20 months.
Duni and other industry experts have said that — despite slower growth than in Denver — the Colorado Springs market will continue to attract more investors as commercial rents and construction costs continue to spike to the north.
A portion of that growth can also be attributed to a diversification taking place in the local economy, Duni said.
“While Colorado Springs’ primary industries have historically been military- and government-related, which has limited hotel room rate growth due to government per diems, what is different now is the transformative shift in its economic base with a variety of private sector investments and public-private partnerships that is driving development throughout the area,” he said.
Among those “private sector investments and public-private partnerships” are projects such as City for Champions, last year’s Sierra Completions hangar at the Colorado Springs Airport and downtown’s Innovation District (anchored by Catalyst Campus). As a result of these economic and community investments, Duni said outside investors are beginning to recognize the value of the local real estate market.
Leigh, who has worked in the local market for decades, believes what is best for the market is not a boom — instead, he said, the healthiest growth is slow, steady and sustained.
“There are places out there that are ready for a crash,” he said. “But I think Colorado Springs is really a safe haven to invest, because we don’t experience the outrageous price spikes and we tend to avoid the severe downturns — so we’re more consistent in that way.”
From an investor’s perspective, Leigh said Colorado Springs is a safer market for investors because of the potential for future growth (unlike Denver, which he said is overpriced and economically backing itself against a wall).
“I would never be a buyer in the Denver market right now,” he said. “The bus is already leaving the station, and it’s too late to get on. You have to buy the bus as it’s coming into the station if you really want to win.”
That foresight — buying the proverbial bus before boarding — has motivated a number of recent hotel acquisitions. Rather than build in the increasingly saturated Denver market, hospitality companies like Wisconsin-based Great Wolf Lodge Resorts choose Colorado Springs instead. Great Wolf Lodge purchased the vacant Renaissance Hotel in north Colorado Springs last year and is planning to open the resort Dec. 26, according to media contact Julia Yuryev. It will be the company’s first hotel in Colorado.
The most significant hotel acquisition of 2016 has been the $12.4 million sale of the Doubletree Colorado Springs Hotel in February.
TOURISM AND REAL ESTATE
News of the city’s robust hospitality and commercial real estate markets was followed by reports of a boisterous tourism economy.
The latest report on local tourism, which the Colorado Springs Convention & Visitors Bureau purchased from research firm Longwoods International, found 20.5 million people visited the region last year and invested $1.9 billion in the local economy in 2015.
Visitors stay an average of five nights, compared to the U.S. average of four, according to the report.
That good news continues this year as well. As of Sept. 1, the city had increased the Lodgers and Automobile Rental Tax revenue by 15.3 percent over 2015, according to the Convention & Visitors Bureau.
“We’ve been seeing such great things in lodging,” said CVB Communications Director Chelsy Offutt. “All the investment that is taking place here in the community … makes it much easier for us to talk to people about visiting or coming back.”
She said “all indicators are pretty positive” that growth will continue into 2017.
“We’ve seen really great increases over Denver,” she said. “We just want to continue riding that wave.”