Colorado Springs’ commercial real estate market faces significant challenges, from the closing of big-box stores to office workers still toiling at home after the pandemic to the uncertainties caused by an escalating trade war. But overall, the local market is relatively healthy and in a better position than in Denver and many of the nation’s other largest cities, recent reports show.
Local vacancy rates remain well below the national average for office and industrial space and only slightly above the average for retail space.
Real estate industry officials said one reason the area’s commercial market remains stronger than many is because fewer large users here have moved out of office space than in many major cities. Office vacancies have surged in Denver, San Francisco, Houston and other major cities as major employers since the pandemic have increasingly adopted remote or hybrid work arrangements and have begun shedding unneeded space.
“It continues to be the case that we appear to have avoided the office vacancy apocalypse that is affecting many downtowns,” said Bill Craighead, director of the UCCS Economic Forum. “But there is a huge cloud of uncertainty over the economy, and it will affect commercial real estate here in several ways,” ranging from widespread layoffs of federal workers that will reduce the need for office space to the threat of tariffs on manufacturing goods and other products that could slow the market for industrial space.
Craighead and Tatiana Bailey, executive director of the nonprofit Data-Driven Economic Strategies, are both concerned that the U.S. economy is starting to slow and could fall into a recession this year due to escalating tariffs and federal job and contract cuts.
“The uncertainty around federal employment, contracts and grants may lead companies and organizations that work with the federal government to put plans on hold — that’s potentially pretty significant for Colorado Springs,” where four major military bases and hundreds of defense and aerospace contractors are major drivers for the local economy, Craighead said.
“If businesses cut back on their investment plans all at once, that could cause a recession,” he said. “We are not there yet, but I am watching all this more carefully. If businesses start slowing their investments (in expanding), the commercial real estate market will slow along with that.”
Bailey is concerned that an economic slowdown may be coming because consumer confidence has been falling in recent months, a warning sign for consumer spending that fuels more than two-thirds of economic activity.
President Donald Trump early this month declined to rule out a possible recession and he has acknowledged his efforts to reduce the size of government, and to level the playing field and stop the flow of deadly fentanyl and illegal immigrants into the country through tariffs, could cause “some pain” for Americans. But he says the country will emerge stronger for it and that the United States can no longer allow being “ripped off by virtually every country in the world.”
Meanwhile, here is how the local commercial real estate market is faring, sector by sector.
Office market
The area office vacancy rate fell from 15.1% in the third quarter of 2024 to 13.5% in the fourth after several large leases were signed in the final quarter of last year, according to a report from Cushman & Wakefield/Colorado Springs Commercial.
The local vacancy rate is significantly lower than the national average of nearly 20% at year’s end, and lower than any of the nation’s 25 largest cities, according to a report from CommercialEdge.com, a California-based commercial real estate software provider. Among those 25 cities, San Francisco was at the top of the list with a 29.3% office vacancy rate; Denver was at 24.9%.
Peter Scoville, a Cushman & Wakefield/Colorado Springs Commercial principal, said the Springs was not hit as hard as larger cities by workers leaving the office because the local market includes many defense contractors who cannot allow employees to work remotely due to security concerns. He said defense and aerospace contractors and small businesses, particularly in the insurance and financial services industries, lend stability to the area’s office market and boost demand for space.
Office markets across the nation could take an even bigger hit from the Trump administration’s cost-cutting efforts. ¯ The Department of Government Efficiency’s “Wall of Receipts” lists nearly 750 leases for nearly 10 million square feet of office space nationwide that the agency wants to terminate in order to save nearly $500 million. That includes 19 leases for more than 350,000 square feet in Colorado but just one lease for 875 square feet in northern Colorado Springs that would save $7,300.
The proposed terminations are just a fraction of 10.6 million square feet in 242 buildings the federal government occupies in Colorado and 551,000 square feet in 28 Colorado Springs buildings, according to the General Services Administration’s database of owned and leased properties. The federal government employed 57,000 civilians statewide in December, including nearly 13,000 in the Colorado Springs area, according to the Colorado Department of Labor and Employment.
Scoville expects the Colorado Springs area to see less impact from federal lease terminations because many of the federal offices and agencies operating locally are defense-, aerospace- and space-related, and unlikely to see major cuts.
Colorado Springs could actually benefit from the termination of some federal office leases in Denver. Small Business Administration head Kelly Loeffler announced this month the agency plans to close regional offices in Denver and five other cities “that do not comply with U.S. Immigration and Customs Enforcement” and move those offices to “less costly, more accessible locations.” U.S. Rep. Jeff Crank, R-Colorado Springs, has invited the agency to move the Denver office to the Springs.
Scoville said the Colorado Springs office market has remained stable despite some employers making space they no longer need available for lease,
“There will be some pushing and pulling as some employers right-size their space,” said Michael Palmer, a senior broker for local commercial real estate firm Olive Real Estate Group. “For today’s work schedule, there is a lot of space that is underutilized and will come back on the market, creating a void in the market that will result in more competitive lease rates and (landlord) concessions. This has already happened among smaller employers.”
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Insurance giant Progressive last year put office complexes in Colorado Springs and three other cities up for sale and leaseback. Martin Johnson, vice president of commercial broker CBRE in Colorado Springs, said Progressive’s 328,000-square-foot campus has attracted substantial interest from potential buyers who would lease back part of the property to the insurer, which no longer needs as much office space because many of its local employees work remotely.
Compassion International has listed for lease much of the space in a 155,000-square-foot office building in the Northgate area it acquired in 2012 as an investment. Most of Compassion’s employees work remotely, but the Christian ministry is keeping its headquarters and related buildings.
Technology giant Oracle has listed nearly 100,000 square feet of space for lease in its 180,000-square-foot Northgate area office complex with real estate giant JLL. Most of the company’s local employees work remotely.
T. Rowe Price is preparing to put its 221,000-square-foot Briargate-area campus for sale with plans to lease the property from the buyer as part of a “long-term plan to maximize the utilization of our office space, and to ensure we make the best use of our budget and resources,” said a spokesperson who asked not to be identified. The company employs 766 in Colorado Springs who work a hybrid schedule of three days a week in the office and two days remotely.
Shipping giant FedEx late last year sold a 100,000-square-foot office building in the Northgate area that had housed its software development and technology operations to Mitre Corp., a nonprofit that manages federally funded research centers for aviation, cybersecurity, defense and homeland security.
Scoville said demand remains strong for high-quality office space because expanding companies can buy or lease existing office space coming onto the market at about half the cost of building new space. No new space has been built on a speculative basis — without a tenant that already leased space — for more than 15 years, but he said a new speculative project will eventually happen after recently vacated space is leased.
Industrial market
The industrial market in the Colorado Springs area slowed in both leasing and building sales while the vacancy rate at the end of 2024 rose slightly to 3.8% from 3.5% a year earlier as plans collapsed to convert a former semiconductor manufacturing plant into a factory to make solar cells. Swiss solar manufacturer Meyer Burger had leased the 700,000-square-foot former chip plant in northwest Colorado Springs in mid-2023 but canceled plans for the $400 million conversion as “no longer financially viable,” putting the facility back on the market.
Still, the area’s industrial vacancy is less than half the national average of 8% for such space, according to a report from CommercialEdge.
At the same time, though, industrial space construction nationwide has been surging with a renewed interest in strengthening supply chains after the COVID-19 pandemic, the report said.
Aaron Horn, senior managing director specializing in industrial space for Cushman & Wakefield/Colorado Springs Commercial, said vacancy rates remained low enough to trigger construction of three new speculative industrial complexes in the area, targeted for use as distribution centers, totaling nearly 600,000 square feet near the Colorado Springs Airport and in Monument. Another 1.5 million square feet of speculative industrial space is in the planning stages.
While developing new industrial space remains difficult due to high interest rates and rising construction costs, Horn said the lack of enough industrial space to meet demand, especially for large users of 100,000 square feet or more, is still fueling construction.
“There is not a lot (for tenants) to choose from. Even those looking for as little as 15,000 square feet are disappointed with what is available. Demand is still outstripping supply. There has been a real uptick in (leasing) activity since December,” Horn said. “We are seeing a lot more activity and interest in our market. People are spending money to build (industrial projects) despite higher construction costs because it is an underserved market.”
The tight market also is prompting some industrial building owners to convert buildings from office or retail to industrial use. A northwest Colorado Springs building that housed a restaurant call center before the company was acquired last year was converted into a warehouse recently for HD Supply, the contractor service division of home improvement giant Home Depot. The former Rustic Hills North Shopping Center also has been converted into industrial use by Chicago investors, Horn said.
Retail market
The vacancies for retail space in the Colorado Springs area ended last year at 4.7%, up from 4.2% a year earlier, with much of the available space concentrated in the city’s two regional malls and other large centers, according to a report completed by CoStar Group for NAI Highland.
The increase in vacant space was driven by the bankruptcy of discount retailer Big Lots that prompted closure of the chain’s three local stores, closing of two Walgreens stores as part of a wave of cutbacks by the pharmacy giant, closing of a Conn’s appliance store and shuttering of many local and national restaurants. But John Winsor, director of retail brokerage for Olive, said many of the locations vacated by national retailers are in high-traffic areas and are already generating interest from potential tenants who see vacant space, which might only require interior finish work, as an attractive alternative to a new building.
Local retail vacancies were somewhat higher than the 4.1% national average at year’s end, a near-record low resulting from high interest rates and increased construction costs limiting new construction, according to a recent report from JLL.
Much of the local leasing activity last year came from non-traditional retail users such as VASA Fitness. Utah-based VASA has converted two former Kmart stores and a supermarket into its three Colorado Springs locations with a fourth planned this summer in a former Gold’s Gym location. Meanwhile, Springs Pickleball is converting one of the former Big Lots stores into an indoor pickleball facility
“Grocers, fitness centers, retailers and entertainment concepts are always looking for opportunities to either move to a better location or expand,” Winsor said. Those opportunities often happen, he added, in economic downturns that “weed out older concepts” that have fallen out of favor with consumers.
John Egan, a principal and senior broker specializing in retail properties for NAI Highland, called the market for retail space stable but constantly evolving as retailers and restaurants close locations or shut down entirely and are replaced by new concepts.
“It is an evolution — the market doesn’t stay the same and 25-30% of the space is always changing,” Egan said. “There is always attrition, especially in restaurants. They go out business and another comes in to take its place. It is kind of the hermit crab’s shell. When a crab leaves the shell, it gets used by another crab. There is a risk factor in developing space for restaurants because they go out of business more frequently than other retailers, but the space is still attractive to the next user.”
Businesses that combine shopping, entertainment and/or food such as Roadhouse Cinema, Top Golf and Scheels have become one of the fastest-growing segments of the retail and restaurant industries in recent years, Egan said. Those types of businesses have largely filled the void left by the decline of regional shopping malls that offered consumers the opportunity to shop, get something to eat and be entertained at the same location.