Real estate of all kinds will be a hot commodity in 2018 and beyond as the Pikes Peak region and the Front Range continue to see unparalleled growth.
That was the message delivered during the Institute of Real Estate Management’s 27th Annual Economic Forecast Breakfast Jan. 18, presented by the Southern Colorado Chapter 53.
The event, which took place at The Antlers hotel, featured presentations by Cary Bruteig with Apartment Appraisers & Consultants Inc, Brad Bird of CBRE and Bruce Betts with Re/Max Advantage. Mayor John Suthers also recapped some of the achievements during his administration and provided an economic outlook for 2018.
Bruteig began his presentation by stating vacancy rates are “probably the most important number to look at in determining the health of a market,” adding those rates show whether supply and demand are in balance.
“They also can tell you rent growth,” he said.
The local market is seasonal, Bruteig said, with vacancies increasing during the winter and declining when spring arrives.
Bruteig said Colorado Springs had higher vacancy rates than northern Colorado cities until about 2005, when the Springs dropped and those communities began to see growth.
“The Springs, having had higher vacancy rates during that period, has also had slower rent growth,” he said. “Now it’s increasing.”
Bruteig said the inventory in Colorado Springs is more stabilized than the Denver market.
“Overall there’s a 10 percent vacancy rate in Denver and 5 percent is stabilized,” he said, adding multi-family supply came online much more quickly to the north.
Regarding rent, Bruteig said Pikes Peak region properties haven’t had the pricing power to begin moving rents up until recently.
“You’ll see hardly any concessions today, which is a sign of a healthy market,” he said.
Bruteig said Denver rents average about $1,400 a month, while Colorado Springs rental rates are 40 percent lower.
“No wonder people are living on the northern end of the Springs and commuting up to Denver,” he said, adding Fort Collins’ rental market demands about $200 more a month than Colorado Springs.
“Fort Collins overbuilt around 2005 to 2006 and vacancy rates shot up,” he said. “Rents fell flat for awhile, but now they’re moving up.”
Office, retail and industrial
Brad Bird of CBRE offered an overview of the region’s commercial real estate market.
Bird pointed to population projections placing the Pikes Peak region at more than 1 million people by 2050.
“The story is that companies are constantly chasing the labor force,” he said. “People are migrating to areas of the country that they want to live.”
Bird said the region’s population is getting younger and becoming better educated.
“There are more than 30,000 college kids in the city right now,” he said, adding the median age is about 35 years old and the population grows by about 60,000 every five years. Unemployment is also about 3 percent and local job and wage growth is expected to outpace the national average.
“We’re now seeing national and international capital look at this market as an undervalued market and as a unique opportunity to grow,” he said.
Colorado Springs currently has about 30 million square feet of retail space, to include 88 regional power centers, 264 neighborhood community centers, 300 freestanding spaces and 95 convenience stores.
The overall commercial vacancy rate is about 5.9 percent, Bird said.
“That is exceptionally tight, to say the least. Generally speaking, commercial real estate, when [the vacancy rate] is below 8 percent — we want to be looking at the next wave of development.
Bird said that in 2016, there was 180,000-square-feet in deliverable space.
“Last year that nearly doubled,” he said. “There were 366,000-square-feet of deliveries with an absorption of nearly 587,000-square-feet.”
Bird said the average rent was about $11.50 per square foot.
“The tightness will make this more challenging,” he said. “But it’s driving more development and more new construction.”
Bruce Betts of Re/Max Advantage provided an overview of the residential market.
Betts said new sales increased from 17,500 in 2016 to 18,775 in 2017, an increase of 7.2 percent. That number, according to Betts, does not include investment properties such as duplexes.
“The challenge is the only thing holding us back is supply,” Betts said.
Betts said new home sales were up 15 percent year-over-year in 2015, up around 19 percent in 2016 and barely topped 7 percent last year.
“The reason is, there are not enough homes to sell or we would have been up even more,” he said. “[Sales increases this] year are projected below 3 percent because there are not enough homes to sell.”
A single listing in the Village Seven neighborhood recently had 23 offers, he said.
“People say, ‘Isn’t that great!’ and the answer is no. We had 22 unhappy people in this case,” he said. “We really would like one or two offers and everyone gets a place to live — but it’s not working out that way.”
Last year saw 2,200 more new listings than home sales,” Betts said. “In October, we had 2000 homes on the market. In October 2012, we had 4,000 homes on the market. Beginning this year, we had 1,400 homes.”
The mayor’s perspective
Mayor John Suthers spoke to the crowd having just returned from a two-day trip to China. “I can’t give details,” he said of his reason for going, adding “but here’s good news: Labor costs in China have now gotten to the point where the Chinese are starting to look for American manufacturing locations. … Their worldview of where to manufacture is changing a bit.”
The mayor reminded the crowd of his three campaign priorities when he ran for office in 2015.
“One was to improve the political climate in Colorado Springs,” he said. “That was absolutely necessary for economic and community development.”
No. 2 was addressing infrastructure deficiencies, to include roads and stormwater.
His third priority was ensuring local government would do whatever possible to help drive job and wage growth.
Suthers said the political environment has improved under his tenure.
“On most major issues we’ve put together six-, seven-, eight-vote majorities to carry these important issues,” the mayor said, adding the city is also working well with other government agencies.
“One example is we are working with El Paso County to consolidate our offices of emergency management,” he said.
As for infrastructure, the mayor said he often has to pinch himself when he thinks of the work done since he took office.
The 2C sales tax passed by voters to improve road infrastructure is expected to generate $50 million a year for a total of five years.
The tax has resulted in 471 lane miles of repaving.
“We’re trending ahead of schedule and believe in five years … we’ll reach over 1,000 lane miles and mostly major arterials,” Suthers said.
Suthers also discussed the passage of a stormwater fee, which should alleviate legal pressures from the city of Pueblo, the Environmental Protection Agency and the state.
“Now we can meet those obligations … but we can also add 120 police officers over next four to five years, which we needed to do,” he said, adding the police academy expects to graduate 48 officers every eight months to keep up with attrition and add the needed personnel.
“Will also add firefighters to be sure response times are what they should be and the professionalism of the departments is where it should be,” Suthers said.
Suthers said the number of jobs created in the past couple years is also reason to celebrate.
For the first 15 yeas of the century, the region saw an average of 3,000 new jobs a year, but needed 5,000 to break even with community growth, Suthers said.
Since 2015, 7,500 to 8,000 jobs have been added to the economy annually.
“This looks good for 2018 as well,” he said, adding the average salary for those jobs is around $70,000 a year.
Tourism also continues to set records, with 20 million visitors coming to the region in 2017, up from 17 million the year before.
Suthers said the area’s sports economy is responsible for generating $420 million in annual business, $215 million of that attributed to the city’s role in the Olympic movement.
The mayor said the talent pool in the Pikes Peak region is highly educated, with 38 percent having earned at least a bachelor’s degree.
“That’s much higher than the national average,” he said, adding there are also 85,000 veterans living in the region.
“Many of them are from tech and cyber backgrounds in the military,” he said.
Top targets for attracting new jobs are the aviation and aerospace, sports medicine, health services and cyber industries.
Suthers also pointed to more than $1 billion currently wrapped up in health care construction and said Colorado Springs Airport is as healthy as it’s been in 17 years.
“A cautionary tale:” Suthers said of the airport, “Airlines are in the money-making business. We’ve got to use these new flights to keep them. It really is a use-it-or-lose-it proposition.”