Renters becoming buyers, apartment buildings changing hands and low inventory for industrial properties — all show an upward trend for the Colorado Springs commercial real estate market.
Top-market apartments have been selling “like hotcakes,” said Andy Oyler, broker with Quantum Commercial Real Estate.
“It’s almost unbelievable how the larger apartment buildings have done,” he said. “If you want to sell one, you probably have a lot of people fighting for it.”
Cap rates are “unbelievably low,” he added, referring to the return on investment as it relates to the market value. “Even if you went up to Denver [for other commercial property], I can’t imagine a cap rate being able to compete with the apartment.”
The reason? Young professionals want to live in apartments, he said.
“You’re young, in your 20s, you want flexibility; you don’t want to worry about a yard, upkeep,” Oyler said. “The flexibility really drives that.”
Office and industrial buildings also offer low cap rates. Oyler surmised the larger markets are becoming more competitive, and as the prices rise, the cap rates drop — and with the increase, investors are looking for property in lower-cost markets like the Springs.
“Multi-family continues to do well as an investment product, not as strong as 2014, but still strong,” said Brad Bird, director of broker services at CBRE.
“It’s a very, very strong market commodity right now.”
The optimism comes from an improving economy and political environment, experts say.
“I tip my hat to [Mayor John] Suthers. A lot of people don’t realize how much politics affects” the business climate, particularly among businesses considering moving here, said Bird. He often tours the city’s available buildings with businesses seeking to relocate to or grow their businesses in Colorado Springs.
“The change in the general atmosphere is making a huge impact for companies,” Bird said.
He is also seeing increased interest in downtown.
“Our clients believe downtown will be revitalized. There is a general optimism about downtown,” he added.
Oyler agreed, saying downtown is a hot market — stronger initially in the retail properties, with office properties “catching up.”
“I recently represented a CPA firm that moved downtown. Seeing those users coming back to the core, I think is positive,” Oyler said. “Even the focus of the Downtown Partnership to be more pedestrian- and bike-friendly is really cool.”
Increased action in residential markets, “looks very positive. We’re running out of lots,” Oyler said. Residential activity, “trickles down to the commercial, with retail, initially. It’ll lead to office and industrial as well.”
“The number-one trend overall is a lack of inventory for owner-users, whether it’s office or industrial.”
– Holly Trinidad
“Retail has been exceptionally strong in the last year,” Bird said. “Retail rates, leasing rates and investment in those properties has continued to improve. People are paying more per square foot than last year. We’re seeing a lot of new development” in the region.
That includes new retail construction at Interquest and Voyager parkways near the Bass Pro Shops, redevelopment of South Academy Highlands on Academy Boulevard and traditionally strong retail users like Walmart and Sam’s Club, also on South Academy Boulevard.
The industrial real estate sector is so strong that “if you look at industrial products less than 20,000 square feet, the inventory is very slim,” said Realtor Holly Trinidad of Hoff & Leigh Commercial.
Of the 33 million square feet of industrial properties, only 9 percent is vacant, Oyler said.
“That plays a pretty big swing in the number of available options. It’s been positive for landlords, more leasing and more income, but unfortunately, it’s becoming more challenging for typical industrial users to find viable options,” Oyler said.
“The No. 1 trend overall is a lack of inventory for owner-users, whether it’s office or industrial. There are not a lot of small office buildings you can buy,” she said. “Buildings that have sat on the market for years are starting to get picked up.”
Low interest rates have made the market attractive for renters to become owners.
“There’s some very aggressive financing, low interest rates and how you structure your loan,” Oyler said.
“With the SBA (Small Business Administration), you only need 10 percent down, compared with the typical 25-30 percent. These tenants are paying the same, sometimes less, and they’re owning the building.”