WESTERN SNAPSHOT, DECEMBER 2005

Colorado Springs Multifamily Market

Carter

Moving into the area with substantial incomes, troops and their families are already having a positive impact on the local economy, especially the multifamily market. Occupancies are on the rise, leaping from 87.5 percent in June to 91.6 percent in September. Higher occupancy rates are driving a drop in rent concessions for the first time since 2003. Rents are the highest in North Colorado Springs, averaging $760 per month, while the most affordable North Central area averages just short of $500 per month.

The greatest changes seen in rental rates and occupancies have been in the newer, post-1990 constructed properties. Occupancies in these newer properties improved 5 percent from last quarter and 7 percent from last year, while rents increased by $12 over the past year. In properties built in the 1980s, occupancies have increased by 6 percent from last quarter and 3 percent from last year. Rents have increased from $634 last quarter and $665 last year to $686 in September. Rental rates for properties built before 1980, however, have remained very stable, at $523 in the third quarter, and $524 in the previous quarter. Last year they averaged a very similar rate of $526. Occupancies in older properties have also seen very little change from 1 year ago. They are at 89 percent this quarter compared to 86 percent in June and 89 percent last year.

Though vacancies are shrinking across most multifamily property types, construction of new multifamily units is virtually non-existent in Colorado Springs. Additionally, construction of new condominiums in the market is limited and condo-conversions are rare due to inexpensive single-family housing. Only one new development has broken ground over the past few years. San Antonio-based Embrey Partners began construction on Talon Hill Apartments in early 2005. The 276-unit luxury apartments, located in North Colorado Springs, will begin leasing in 2006.

Contrarily, new home construction is at record highs for the fourth consecutive year, which significantly impacts apartment occupancies and prolongs recovery of the rental market. For the past several years, renters have exited apartments for home ownership, though the military relocation to the area has recently countered some issues with apartment vacancies. Also impacting the rental market is the purchase of new homes as investments for subsequent renting. New home construction and population flow must be taken into account when looking at apartment supply and demand balances.

During this period of rental market softness, Colorado Springs remains a much-desired market for real estate investors. The question has never been if Colorado Springs will continue to grow, but rather when this period of softness will end and turn into long term growth. Over the past year, more than $200 million has changed hands in the Colorado Springs multifamily market. Apartments valued at more than $5 million have been trading at an average price of $69,729 per unit. Recent sales include New York-based Praedium Group's purchase of The Retreat at Cheyenne last March. The garden-style apartments, consisting of 19 buildings and 276 units, sold for $81,884 per unit. In June, Denver-based RedPeak Properties purchased the 220-unit Briarglen for $62,182 per unit.

Looking forward, Colorado Springs can expect continued modest economic growth. Since the most recent recession, several national companies have announced their expansion in the area. Intel is spending approximately $690 million to finish building the vacant half of its 1 million-square-foot campus. It will hire 109 new employees this year and has plans to hire several hundred more. Barclays PLC, a credit card company, has just announced its plans to open a new call center in Colorado Springs, offering 450 new jobs. Northrop Grumman, which already hired 100 employees this year, currently has 50 openings and plans to hire 200 to 400 more employees over the next 2 years.  

In 2006, 7,000 overseas troops are expected to return to Colorado Springs. To achieve real traction toward a balanced market and a vibrant economy, a change in policy will need to occur to reduce deployments or the announcement of new private-sector jobs must continue. Until then, the rental market will remain remarkably stable and Colorado Springs will continue on the upswing. Any delays in its recovery are clearly temporary.

Doug Carter is senior advisor for Sperry Van Ness / Doug Carter LLC in Colorado Springs.

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