Q3 Colorado Springs Industrial Market Report
Recent Positive Gain for CPPI
CPPI Index
As of June 2024, the Green Street Commercial Property Price Index (CPPI) increased by 0.7% in May 2024, marking the first increase in the CPPI over the last 24 months. The all-property index, which tracks pricing for institutional commercial real estate, has seen a 1% increase so far this year and is currently 21% lower than its peak in March 2022.
Although the CPPI showed its first increase in over two years, the positive gain was very incremental. This does not suggest that pricing is going to exponentially increase; however, it does show a bounce back from the last couple of years. The trend line suggests the market is gradually becoming more stable. Even though +0.7% isn’t a substantial increase, it is a step in a positive direction compared to the prior two years.
Expect this trend to continue into the second half of 2024, as the Federal Reserve announced in their latest meeting that there is a likely chance a rate cut will be seen in the Fall. Even though the rate cut is expected to be minimal, this is a massive milestone as it will be the first rate cut seen in well over two years, with more expected to come in 2025.
Market Stabilization: 10-Year Treasury Comparison
10-Year Treasury:
Q2 2023: 3.71%
Q2 2024: 4.40% (+18.65% increase from Q2 2023)
The 10-Year Treasury was at 4.32% at the start of Q2 2024 and ended the quarter at 4.40%, as it has consistently stayed in the low-to-mid 4% since the start of 2024. This is expected to decline further after the Federal Reserve’s latest update of an expected rate drop this fall.
Many lenders base their terms on the 10-Year Treasury, which is why a tight range is a good sign. Lenders are more confident in their underwriting when the 10-Year is more predictable and doesn’t show major peaks and valleys.
Focused Metrics: YOY Change
Vacancy (5,000 – 100,000 SF)
Quarterly Metrics:
Q2 2023: 3.0%
Q2 2024: 5.0% (+66.67% increase from Q2 2023)
Industrial vacancies in Q2 2024 have risen 66.67% since Q2 2023 and continue to climb as it has now bumped up another 11.11% since the previous quarter. With a lack of new industrial supply coming to the market this year, the rise in vacancies is expected to plateau. The forecast predicts vacancies to hit a ceiling of just under 5.75% through 2024. With overall rents still increasing at a healthy rate along with vacancies forecasting signs of improvement, expect the Colorado Springs industrial supply to continue tightening.
Sales Volume (5,000 – 100,000 SF)
Quarterly Metrics:
Q2 2023: $13.48M
Q2 2024: $40.46M (+200.12% increase from Q2 2023)
Colorado Springs has experienced a surge in transaction volume as of late, with a staggering 200.11% increase compared to Q2 2023 and a 95.87% increase compared to Q1 2024. Looking at the same quarter a year back, sales volume has almost tripled, showing an increase in motivation from buyers as well as a more realistic understanding of value from sellers. Buyer sentiment overall has improved. With the first likely rate cut by the Federal Reserve expected this fall, many investors are looking to get back into the market after over two years of steady, elevated interest rates.
Average Sale Price per SF (5,000 – 100,000 SF)
Quarterly Metrics:
Q2 2023: $103
Q2 2024: $144 (+39.81% increase from Q2 2023)
The average sale price per square foot of industrial products in Colorado Springs has gone up 39.81% since Q2 2023. On average, industrial properties have traded at around $41 more per square foot compared to the same time last year. The average sale price per square foot remained stable from the previous quarter, holding strong at $144 per square foot.
With the wave of loan maturities expected to hit this year and next, there is a risk that property values will decline rather than increase in the interim. Many property owners who secured low-interest debt between 2017 and 2022 with five- to seven-year terms may struggle to refinance at current rates, as new mortgage payments could double or even triple. This financial strain may compel many to sell properties rather than refinance, leading to an increase in supply on the market. As a result, this influx of available properties could dilute property values with more competition on the market for buyers to sift through.
Asking Rent per SF (5,000 – 100,000 SF)
Quarterly Metrics:
Q2 2023: $10.39
Q2 2024: $11.22 (+6.96% increase from Q2 2023)
The asking rent per square foot in Colorado Springs has risen 6.96% year-over-year and 1.36% from the prior quarter. The continued rise in rents is indicative of the lack of new supply compared to demand, as well as Colorado Springs continuing to be seen as one of the most emerging secondary markets in the country.
Net Absorption (5,000 – 100,000 SF)
Quarterly Metrics:
Q2 2023: 65,332 SF
Q2 2024: -109,939 SF (-286.288% decline from Q2 2023)
Net absorption has seen a drastic decline of -268.28% compared to Q2 of 2023. In Q1 and Q2 of 2024, this trend is largely correlated with the rise of vacancies. Absorption is expected to pick back up as new deliveries taper off due to the high costs of construction debt and materials. Sentiment in the market is also expected to improve due to expected interest rate cuts.
Under Construction (5,000 – 100,000 SF)
Quarterly Metrics:
Q2 2023: 249,788 SF
Q2 2024: 200,000 SF (-19.93% decrease from Q2 2023)
Industrial construction dropped 19.93% as of Q2 2024 compared to Q2 2023. Construction in Colorado Springs remained constant at 200,000 square feet compared to the prior quarter. With a total of 25.5 million square feet of industrial inventory in Colorado Springs for buildings between 5,000 – 100,000 square feet, the 200,000 square feet under construction won’t have a huge impact on the current market upon completion.
