Colorado Springs rewrites the rulebook on millennial appeal, creating a reputation as a hot spot for young professionals seeking a higher quality of life. With easy access to 500 miles of trails, numerous job opportunities in thriving industries and an affordable cost of living, Colorado Springs’ renter market possesses the necessary ingredients for a significant growth in young, educated, highly-compensated residents.
Fueled by Colorado’s massive net in-migration the past few years, El Paso County led the state in population growth and added 7,629 jobs from May 2018-2019. Over half of these jobs were in health care, business services and technology, resulting in an 11.94% year-over-year wage growth during this time. Looking at the 13,291 job postings with a median salary of $78,000 in Colorado Springs, this growth is expected to continue. Of these job openings, 36% were seeking registered nurses, software/system engineers, systems administrators and medical assistants.
The impact of Colorado Springs’ booming economy on the multifamily rental market is beginning to show. From second-quarter 2016 to second-quarter 2019, rents increased $196, or 21.51%. This equates to a 7.17% average year-over-year rent growth, nearly double the national average rent growth of 3.9% during this time. Average vacancy remained at 5.3%, indicative of a healthy equilibrium between demand and deliveries, especially considering the strong and consistent rent growth over several years. Although the area has seen impressive upward trends, development has been unusually low for this stage in the cycle and the Colorado Springs market is showing no signs of softening. In fact, in the first two quarters of 2019, the market has already seen a $55 increase in rents and a 52 basis points decrease in vacancy.
Much of this rent growth can be attributed to Colorado Springs quickly becoming a hub for the aerospace and defense, and health care and medical technology fields. The recently completed 294,000-square- foot Children’s Hospital in Briargate hired 700 employees and is seeking more medical professionals as the hospital’s first month of operations surpassed expectations, treating an average of 54 patients a day. The 700 employees generate a $42 million annual payroll and 10% originated from outside of Colorado.
In the same area, Centura Health purchased an approximately 60-acre lot for $30 million, with plans of constructing the organization’s third medical campus. Once completed, this will become the largest hospital in the southern half of Colorado. In the aerospace and defense industry, Colorado Springs is receiving international recognition as a top candidate for the headquarters of the new Space Force and permanent location for United States Space Command. With over 250 aerospace and defense companies, pre-established space units at Peterson and Schriever Air Force Bases, and the ability to recruit highly technical employees to the area, Colorado Springs is considered a logical choice. Not only has the growth in these industries sparked multifamily demand, it has also attracted technology and cyber security companies, Colorado Springs’ fastest growing industry yet. Affordability is a major concern for many up and coming tech companies, considering the high cost of their well-educated and technically skilled payroll. According to a survey of 1,000 information technology professionals, Colorado Springs provides these companies affordable office space in the second-most desirable place to live by their talent pool. For example, Clover Network, a Silicon Valley-based payment processing software company recently announced plans to double in size by 2020 and anticipates its Colorado Springs office will one day compete in size with its 500-person Silicon Valley headquarters.
Colorado Springs is attracting a similar caliber of companies and employees as other markets that have experienced significant increase in high-income renters, like the Denver metro. However, Colorado Springs offers a more affordable alternative to these metros, encouraging companies to expand and allowing overall economic growth for years to come. As of second-quarter 2019, average rents in Colorado Springs lagged $405 behind metro Denver’s record-breaking high of $1,512 per month. Considering Colorado Springs’ employment trends and affordability issues in Denver becoming more prevalent, this gap represents plenty of runway left in the Colorado Springs multifamily market. As this gap closes, renter preferences will likely shift toward newer, more centrally located product as renter incomes increase and age decrease. This demand shift has already begun; 2010-19 vintage properties in Colorado Springs are achieving $312 higher rents and 27 bps lower vacancy than the overall average. Keeping in mind the lack of new construction, investors can expect to see an abundance of value-add opportunities in Colorado Springs as this trend continues.
Following suit, revitalization efforts in the downtown area have drastically shifted Colorado Springs’ reputation, appealing to young professionals who desire a lively, urban community with easy access to outdoor recreational activities. After all, Brookings Institute found that Colorado Springs has the fastest growing 18-34 age group of any U.S metropolitan area. Most notable of these developments is the up and coming City for Champions project, an in-progress development consisting of the new U.S. Olympic Museum, the Air Force Academy Visitor Center, the University of Colorado Colorado Springs Hybl Sports Medicine & Performance Center and a 10,000-seat sports stadium. This project and several other major developments will aid in attracting a larger renter market, replicating the effect Coors Field attributed to Denver. Looking through a smaller lens, young professionals are driving the growth of retailers, restaurants, breweries and even co-working spaces into downtown Colorado Springs. Appetite for entertainment, shopping and nightlife in this area will likely become stronger than ever, especially when factoring in the expanding student population at Colorado College and UCCS.
Overall, Colorado Springs has experienced impressive economic development and recent multifamily growth, these findings indicate that the best is yet to come. Colorado’s large net in-migration rate provided the momentum required to put Colorado Springs on the map among an ideal group of young, professional renters. With the attention of employees/companies of lucrative industries seeking relocation from major metros and necessary economic fundamentals in place, the Colorado Springs multifamily market is positioned for a long sprint of serious growth.