Colorado Springs fosters the cybersecurity industry

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Colorado Springs is looking to the cybersecurity industry to boost office activity.Colorado Springs is looking to the cybersecurity industry to boost office activity.

A couple years ago, the Colorado Springs Chamber & EDC began examining the cybersecurity industry and quickly identified it as a major emphasis area for the future. A city vision was formed for Colorado Springs to become a cybersecurity capital within the United States.

This vision rapidly accelerated in 2016 with the announcement of three major projects. The National Cybersecurity Center, a nonprofit organization with a mission to provide collaborative cybersecurity response services through education, training and research, inspired by Gov. John Hickenlooper, selected Colorado Springs for its home. Plans for the U.S. Northern Command/NORAD Joint Cyber Center were announced; it will be an Air Force asset that will focus on cybersecurity challenges. And the Catalyst Campus, a local, private, industry-focused technology campus announced plans to build a cyberlab to help small and midsize technology companies.

“Between these three pieces, you have one that’s receiving state funding and support, one that’s receiving federal dollars through the Air Force and one that’s privately funded,” said Andy Merritt, the chamber’s chief defense industry officer. “So you’ve got very different and distinct, but also very complementary, activities that all really started coming into place last year.”

While those outside of the industry are still grappling with what cybersecurity entails, those in the industry already have put Colorado Springs on the map. The chamber hosted several U.S. and international cybersecurity companies interested in relocating last year and Merritt expects interest to continue to grow. He’s also seeing the established and startup companies already located in the city growing and adding significant numbers of new employees.

In some ways, cybersecurity is a natural outgrowth of the strong information technology industry already present in Colorado Springs. “There’s been a lot of talent and companies here that have made those kinds of shifts into that cybersecurity realm,” said Merritt. Going hand in hand with that IT strength is Colorado Springs’ reputation for strong communications connectivity.

The city’s prevalent military and Department of Defense presence helps as well. For example, the Air Force Space and Command, headquartered in Colorado Springs, is the cyber executive agent for the Air Force. There also are many locally affiliated support companies within the defense industry in town, Merritt said.

Workforce. As with all jobs, access to a vibrant workforce is king. For this young industry, it’s even more challenging because there is a significant national shortage, Merritt said.

“A lot of the focus going forward is going to be around workforce development, because the community that can get workforce right in this arena is going to have a major leg up competing nationally.”

In order to foster workforce growth, the city will need to leverage the local transitioning military – the some 500 to 600 people getting out of the military every month in the city. Many of these folks could be ideal for these positions due to their military training.

Another focus to shore up the workforce is to leverage the local academic institutes. Four local institutions are National Security Agency certified Centers of Academic Excellence for Information Assurance – the University of Colorado Colorado Springs, the Air Force Academy, Regis University and Colorado Technical University.

“We’ve got the universities developing that future workforce, which has made us attractive,” said Merritt. The strength of the region – defined by its higher education in cybersecurity programming, strong local government support, military and more than 100 private-sector cybersecurity and IT companies – were all factors contributing to the National Cybersecurity Center’s selection of Colorado Springs, said Eric Hopfenbeck, NCC’s chief of staff.

Office Real Estate Needs

Typically, cybersecurity companies like to be fly-below-the-radar users, so getting a firm handle on exactly what is going on can be difficult, said Andy Oyler, a Quantum Commercial Group office and investment broker.

“I’ve done leases with a number of the larger defense contractors in town, but we so rarely know exactly what they’re doing at that particular location,” Oyler said. “Sometimes they’ll allude to what they do but, most of the time, they don’t tell us a whole lot.”

According to the Colorado Springs Chamber & EDC, there are more than 80 cybersecurity companies and 140 IT companies in the city along with five workforce training organizations in cybersecurity. The city is ranked fifth for cybersecurity jobs, according to Clearancejobs.com.

The size of the companies run the gamut, from small startups to major international companies, such as Lockheed Martin. With the smaller ones, there is a need for flexibility of expansion, as they’re growing quickly, said Merritt. The bulk of the interest from relocation prospects are small to midsize companies, in the 50 to 200 person range, he said.

The Colorado Springs office market has been slow to recover, especially near the airport, due to a lack of new jobs, said Oyler. So the growth of the cybersecurity industry will have a positive impact on the office market. Many of these companies tend to be larger users and, in addition to taking larger spaces, they’ll bring other economic opportunities.

“Cybersecurity companies are leasing up space and often will require a modification of their space, which will lead to opportunities for construction companies to do the build out,” Oyler said. “Plus, your average cybersecurity employee is paid well – all of that is very positive.”

The most important real estate must-have is communications capability. “They need real estate that has real high-speed internet capability and can handle significant traffic because that’s the fundamental need,” said Merritt.

The second important real estate criteria is location. “The workforce is the biggest item that’s going to slow the growth of the industry,” said Merritt. “The demand for cyber capabilities and services is going to keep growing exponentially. But it’s the workforce that is the obstacle.”

For this reason, locating near areas of talent – such as military bases and academics – helps foster employment growth, especially for companies working with defense and military organizations. Many of the commercial-focused cybersecurity companies are pinpointing where their desired workforce – mainly millennials – want to live and work, often in pockets downtown, Merritt said.

Most of the cybersecurity companies are moving into existing office product and retrofitting these spaces, rather than building new facilities. This is due to a large amount of available office space plus the cost of new construction is significant, said Oyler.

The National Cybersecurity Center selected its specific area within the city to spark economic development and because the organization could locate in an existing building, said Hopfenbeck. While currently in temporary offices, the future home of the NCC is a 135,000-square-foot facility operating as an expo center. The building was formerly a satellite manufacturing facility for TRW, though it has had many uses since. The facility was identified through a partnership with UCCS – the school owns the building, and NCC will rent its space, Hopfenbeck said.

One of the biggest variables is the tenant-improvement costs because many companies require some type of sensitive compartmented information facility build out. Even if the property has SCIF in place, most will have to recertify the area to the level they need.

“When building out SCIF space, the cost typically is very high,” said Oyler. Within the lease, most landlords may take on some of the costs with a tenant-improvement package, and the tenant is responsible for the remainder of the build-out cost.

“Not all cybersecurity companies require SCIF, but I would assume most of them need some level,” Oyler said. “It all depends on what they’re doing at that location and how secure it has to be.”

For these cost reasons, cybersecurity companies are likely to have longer termed leases in order to amortize the build-out costs.

While cybersecurity, at its most basic meaning – protecting data – is defined, the industry still is changing rapidly as every other industry begins to grapple with the ramifications of cyber threats. Cyber threats touch all industries, making the market opportunities for cybersecurity broad and the potential for growth explosive.

It’s logical to assume that all the private and public defense operations, as well as most of the IT companies, are involved in cybersecurity in one form or another and will only grow in these areas – making the potential impact on the office market extraordinary.

Featured in CREJ’s March Office Properties Quarterly.

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