It would take roughly a decade before enough jobs could be created to fill the 10 million or so square feet of office and industrial space vacant in Colorado Springs.
That estimate, reflecting a consensus of Realtors surveyed by the Business Journal, is based on a simple calculation: it takes one new primary job to fill 2,500 square feet of commercial space.
That means the market needs 25,000 such jobs to fill just the space that’s available today.
The city’s commercial real estate vacancy problem has been well-documented, but what hasn’t been calculated is just what it might take to put things back on track.
The 10-year estimate is based on the number of jobs created in most economically healthy years here. Over the past decade, the region saw the net creation of only 1,900 jobs. Many more jobs were, in fact, established during that time, but nearly just as many were lost during the tech bust and the Great Recession. But when the economy is humming along, as many as 3,000 new net jobs have been created.
At the moment, there are 353 office and 217 industrial buildings around town. Oversupply is evident throughout the city, but especially in two of the city’s three primary Class A markets.
The north I-25 corridor, for example, is experiencing 29 percent vacancy rates while Class A buildings in the southeast part of town are 34 percent vacant, many abandoned by defense firms that moved on to newer or upgraded quarters elsewhere.
Only downtown, with its 11 percent vacancy rate, remains close to historic norms.
At the close of the second quarter, 20.3 percent of the market’s 6 million square feet of Class A office was vacant: about 1.1 million square feet out of a total 5.8 million square feet, the second-highest figure over the past decade.
The industrial vacancy rate stood at about 3.8 million square feet, or 11.3 percent of the total 33.6 million square feet of such space available.
“It’s a real brain twister to figure out how we’ll absorb it all,” Bach Real Estate Partners industrial broker Mike Helwege said.
The answer, of course, is to generate more jobs.
“There’s a direct correlation between commercial space demand and employment. That’s one thing we track. When people are employ`ed again, that will especially drive demand for space,” said National Association of Realtors economist George Ratiu.
But during the past three years, job growth has been offset by job losses.
Colorado Springs Regional Economic Development Corp. CEO Mike Kazmierski reported in January that since 2000 the area has lost 18,571 jobs. During the same period, EDC was able to add another 20,416 jobs for a net gain of 1,916.
Since its fiscal year began in October, the EDC says another 868 new jobs have been added to the local economy. Yet in the same time, local employers shed 1,000 jobs, negating any gains.
Unemployment in the market has hovered near 9 percent. Only the growing defense and call-center sectors have buoyed an otherwise flat jobs market.
Though grim, the situation isn’t entirely without hope.
Commercial brokers and EDC officials point to a few leasing highlights.
In June, for example, El Paso County announced it planned to purchase an almost 300,000-square-foot office building at Corporate Ridge Office and Technology Center from its owner, Industrial Realty Group.
That was preceded by the lease in that same building of 70,000 square feet by Everest College’s parent.
Other large chunks of space leased in the second quarter included an 80,000-square-foot renewal by Ford Motor Credit and the Boeing Co.’s 50,000-square-foot lease of Tech Center II.
In all cases but the Everest College lease, however, office and industrial space was filled by local rather than relocating firms, Helwege said.
That means old space was left behind by decamping tenants, so the challenges ahead are great.
Sierra Commercial broker Brian Wagner isn’t overly optimistic. He pointed out that there are plenty of “large floorplate” buildings — those with 10,000 square feet or more on a single floor — from which to choose. It’s harder to attract larger tenants to fill those spaces.
Those larger spaces include the Verizon campus on 30th Street, which represents at least 100,000 square feet of available office space. Also on the market: the 360,000-square-foot former SCI/Sanmina plant on 96 acres south of Fountain.
To the north, there are several medical and general office buildings available containing at least 200,000 square feet located near Memorial North Hospital off Briargate Parkway. And then there are several hundred thousand square feet of Class A office and industrial space owned by Corporate Office Properties Trust, both at Patriot Park and off Interquest Parkway.
But all is not lost, said Kazmierski.
When there’s too little available space — a 5 or 6 percent vacancy rate for example — economic developers can’t meet the needs of some relocating or fast-growing companies that want to move quickly.
A few white elephants, it turns out, can actually work to a city’s advantage.
“We’ve found that relocating companies are very receptive when you tell them that you can offer them an older building that needs work for $18 per square foot vs. building new for $120 per square foot,” he said.
NAI Highland Commercial Group brokers Randy Dowis and Paul Engel are marketing the SCI/Sanmina building, which is listed for $13 million, or $36 per square foot.
“We’ve had a lot of showings — everyone from alternative energy to back office (call centers) and investors. It’s certainly priced competitively — about 30 cents on the dollar compared to what new construction would cost,” Dowis said.
David White, the EDC’s executive vice president, sees still another category of prospective users: data centers.
“I could see a data center interested in the former Intel Fab building (a sister building at the old Intel site off Garden of the Gods),” he said.
He may be onto something.
Since 2006, four major data centers — including a new Hewlett Packard 250,000-square-foot facility next to an existing 1.1-million-square-foot complex on Rockrimmon Boulevard — have been added to the industrial landscape.
HP joined Verizon Wireless with a similar facility in a former semiconductor building off Garden of the Gods as well as a FedEx Corp. data center and a Progressive Corp. facility off I-25.
Data centers typically don’t employ as many people per square foot as other businesses, but they focus on clean technology. And in a competitive economic-development environment, one clean industry tends to attract others such as renewable energy.
“We could actually use more empty buildings like an Intel. They’re an economic development ‘crown jewel,’” White said.
Maybe, but don’t tell that to the commercial brokers starving for business at the moment.
Commercial real estate vacancy rates at the end of the second quarter in Colorado Springs compared to other cities in the state:
Office total: 28.6 million square feet
Class A office: 5.8 million square feet
Class A vacancy:20.3 percent
Industrial total: 33.6 million square feet
Industrial vacancy: 11.3 percent
Office total: 103.6 million square feet
Class A vacancy:17.2 percent
Industrial total:216 million square feet
Industrial vacancy: 8.6 percent
Southwest Denver (Centennial, Lone Star):
Office total: 4.5 million square feet
Class A vacancy:6.4 percent
Industrial total:18.9 million square feet
Industrial vacancy: 6.2 percent
Northwest Denver (Westminster, Broomfield):
Office total:7.8 million square feet
Class A vacancy:19.2 percent
Industrial total:11.8 million square feet
Industrial vacancy: 13.2 percent
Office total:4.7 million square feet
Class A vacancy:12.0 percent
Industrial total:17.9 million square feet
Industrial vacancy:10.4 percent
Source: Turner Commercial Research, Grubb & Ellis Denver