2Q20 2Q19 1Q20

Vacancy 11.93%

▲

▲

Lease Rates $16.54 ▲ ▲NetAbsorption 59,151

▲

▲

CLASS A/B OFFICE MARKET OVERVIEW2020 is certainly not the year anyone anticipated and forecasting how the year may conclude seems naive, but at this point it is fair to say the Colorado Spring’s commercial office market has weathered the storm with little impact. While activity amongst traditional office users is light, and many still work remotely from home, there have been few cases to-date of tenants looking to vacate or give back space and things appear to be picking up! Throughout the first half of 2020 activity amongst defense contractors has been brisk, which has had the most impact on the Airport submarket but has also overflowed to the North I-25 submarket; this lease activity and absorption will cushion any negative effects of COVID-19 in these submarkets, and the CBD submarket seems steady for now. Overall vacancy rates for the market are up slightly in the first half of the year due to two larger blocks in the North I-25 submarket being vacated, while lease rates and absorption have showed positive trends in the first half with average rates up $.31/foot and overall positive absorption of 107,119 square feet registered. Given current activity in the market we anticipate the year to continue experiencing overall positive absorption, and lease rates to stay steady and likely improve.

As of early July, total COVID-19 cases in El Paso county stand at 3,100. Outside of people wearing masks, the city of Colorado Springs 'feels' fairly normal. While cases are spiking elsewhere in the country, which gives some uncertainty to the overall picture, the local economy continues to be healthy, with residential real estate very strong, unemployment low, new construction of everything from residential, apartments, hotels, and office building’s still on track and with more planned. While we are certainly not immune to the overall impact of the COVID-19 crisis, and the retail market has been adversely impacted, we forecast a general optimism for both the short and long-term outlook for the city. Space Command is appearing to have a positive impact with numerous GSA and DoD groups seeking larger blocks of space and drawing new employment to the city with high paying jobs. The residual impact of this will keep Colorado Springs on a very positive trajectory.

-30.0%

-25.0%

-20.0%

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

-300,000

-250,000

-200,000

-150,000

-100,000

-50,000

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

2012

2013

2014

2015

2016

2017

2018

2019

1Q20

2Q20

Absorption Vacancy

MarketViewSecond Quarter 2020

QUICK STATS

HOT TOPICS

CLASS A/B VACANCY VS NET ABSORPTION

2 N Cascade Avenue, Suite 720 • Colorado Springs, CO 80903 • +1 719 634 1500 • coscommercial.com ©2020 Cushman & Wakefield | Colorado Springs Commercial. All rights reserved. The information contained within this report is gathered from multiple sources believed to be reliable. The information may contain errors or omissions and is presented without any warranty or representations as to its accuracy.

PETER SCOVILLE Principal+1 719 330 8339

GREG PHANEUFPrincipal+1 719 339 9062

• After two months of slowing sales, the Colorado Springs-area housing market rebounded in June with a 2% YoY increase of single-family home sales

• Several hundred new residential units have been proposed for downtown over the next three years. New projects in the pipeline include a 320-unit apartment complex at Pikes Peak & Wahsatch, a 154-unit, two-building apartment project northwest of Vermijo & Wahsatch, a 217-unit Pikes Peak Plaza apartments northwest of Pikes Peak & Prospect, a 200-unit apartment project southwest of Cimarron & Sahwatch, and a 187-unit Parkside multifamily housing development along the east edge of America the Beautiful Park

• Ground was broken for the indoor 3,400-seat Robson Arena at Colorado College and the 8,000 seat outdoor Colorado Sports and Event Center, the future home of the Switchbacks soccer team. Both arenas are scheduled to be completed in 2021.

• Peterson Air Force Base will be home to U.S. Space Command for at least the next six years

(SF)

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FEATURED OFFICE PROPERTIES

CLASS A/B OFFICE STATISTICS

SIGNIFICANT TRANSACTIONS

OFFICE MARKETVIEW | 2Q20

BUILDING NAME ADDRESS TENANT SQ FT QTRLEASE TRANSACTIONSNewport Business Park 1050 N Newport Rd Undisclosed 31,834 2nd2424 2424 Garden of the God Rd GSA 23,508 2ndNorthcare at St. Francis 6071 E Woodmen Rd Catholic Health Initiatives 20,828 1stPatriot Park I 985 Space Center Dr Jacobs Technology 15,491 1stCorporate Pointe 1975 Research Pkwy ASRC Federal 13,166 1stEpic One 10807 New Allegiance Dr Akima 12,332 2nd 1055 Newport 1055 N Newport Rd ENSCO 8,920 2ndUnion Medical Campus (MOB) 1625 Medical Center Pt Aspire Allergy & Sinus 7,362 2nd 4194 Royal Pine 4194 Royal Pine Dr North Springs OBGYN 6,500 2ndBriargate Tech 2375 Telstar Dr Synergy Manual PT 6,400 2nd

BUILDING NAME ADDRESS SALE PRICE/PER SF SALE TYPE QTRSALE TRANSACTIONSUnion Medical Campus (MOB) 1625-1644 Medical Center Pt $33,630,000/$225.06 Investor 2ndCentennial Technology Center 4820 & 4920 Centennial Blvd $15,000,000/$135.86 Investor 1stOne Commerce 7222 Commerce Dr $10,570,000/$133.76 Investor 1st Powers Professional II 6160 Tutt Blvd $8,240,000/$231.83 Investor 1stCorporate Centre 6760 Corporate Dr $6,250,000/$138.41 Investor 1stPatriot Park II 980 Technology Ct $3,219,000/$96.99 Investor 1st

11.93% Direct Vacancy Rate

13.14% Overall Vacancy Rate

THE CAMPUS @ PATRIOT PARKColorado Springs' Newest Development

400,000± SFBuild-to-Suit or Lead Tenant

BRIARGATE RESEARCH2025 & 2075 Research Parkway

7,816-53,183 RSFSingle-story Office Building

PALMER CENTER2 North & 90 South Cascade Avenue

924-8,826 RSFJoin Wells Fargo, Bluestaq, UBS & More

OFFICE MARKETVIEW | 2Q20

CLASS A/B VACANCY

23.4

9%

21.6

0%

19.9

0%

19.5

6%

18.6

6%

15.5

1%

10.0

2% 12.9

0%

12.2

8% 15.1

5%

25.6

1%

23.2

8%

29.3

2%

23.9

8%

23.2

8%

19.6

1%

23.2

3%

14.3

2%

13.8

4%

11.4

0%14.3

4%

10.5

5%

16.8

5%

13.5

2%

11.1

2%

10.2

3%

6.89

%

6.51

%

5.91

%

5.24

%

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

35.00%

40.00%

2012

2013

2014

2015

2016

2017

2018

2019

1Q20

2Q20

North I-25 Airport CBD

$12.

42

$11.

81

$12.

43

$12.

87

$13.

30

$13.

56

$14.

56 $1

6.10

$16.

39

$16.

56

$11.

81

$12.

72

$12.

87

$13.

00

$12.

94

$13.

47

$14.

21 $1

6.00

$16.

22

$16.

25

$14.

80

$14.

47

$15.

21

$14.

85

$15.

00

$15.

37

$15.

64

$16.

70

$17.

00

$16.

72

$0.00

$5.00

$10.00

$15.00

$20.00

2012

2013

2014

2015

2016

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2019

1Q20

2Q20

North I-25 Airport CBD

145,

202

74,3

82 106,

229

36,5

07 70,9

32

157,

170

269,

552

4,58

1

27,2

92

-3,5

10

-17,

854

39,7

43

-21,

676

5,14

0 39,6

48 83,1

56

-7,6

19

146,

598

6,42

6 49,3

99

18,1

14 67,7

72

4,65

1 34,5

78

8,00

6 38,2

04 80,2

59

13,8

24

14,2

50

13,2

62

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North I-25 Airport CBD

Vacancy rates rose slightly in the first half of 2020 from 11.52% for year-end 2019 to 11.93%. The numbers reflect two larger vacancies created by tenants vacating approximately 50,000 square feet in the North I-25 submarket. The Airport submarket dropped from 14.32% for year-end 2019 to 11.40% and the CBD submarket dropped from 6.51% for year-end 2019 to 5.24%. The market is tight although some fallout from COVID-19 is expected in the second half of 2020, which is not anticipated to adversely affect the overall market.

Lease rates continue to escalate, with the highest-end Class A properties in the low $20's per square foot and new construction in the high $20's. Average lease rates jumped slightly in the first half of the year to $16.54 per square foot market-wide. We expect these numbers to hold steady in the CBD and North I-25 submarkets and increase in the Airport submarket, where DoD activity is strong and vacancy rates are plummeting. There are significant new construction projects being planned and these projects should further bolster lease rates.

CLASS A/B LEASE RATES

Year-to-date absorption was a positive 107,119 square feet, with all three submarkets posting positive figures for the first half of the year, with the Airport submarket posting the strongest numbers. While some softening could occur in the second half of the year, overall activity suggests it won't be significant and any vacancy created should be fairly quickly leased.

CLASS A/B ABSORPTION

(NNN, ANNUAL, PER RSF)

(SF)

2 N Cascade Avenue, Suite 720 • Colorado Springs, CO 80903 • +1 719 634 1500 • coscommercial.com ©2020 Cushman & Wakefield | Colorado Springs Commercial. All rights reserved. The information contained within this report is gathered from multiple sources believed to be reliable. The information may contain errors or omissions and is presented without any warranty or representations as to its accuracy.

LEASE RATES

21.46%

15.36%14.38%

11.76%

7.54%

11.45% 11.11%

8.25% 8.08% 8.14%

5.00%

10.00%

15.00%

20.00%

25.00%

2012

2013

2014

2015

2016

2017

2018

2019

1Q20

2Q20

VACANCY

ABSORPTION

MEDICAL OFFICE MARKET STATISTICS

$16.15 $16.13 $15.98 $16.10 $16.40 $16.37

$17.50 $17.88 $17.94 $18.73

$0.00

$2.00

$4.00

$6.00

$8.00

$10.00

$12.00

$14.00

$16.00

$18.00

$20.00

$22.00

2012

2013

2014

2015

2016

2017

2018

2019

1Q20

2Q20

7,350

129,446

27,094

60,36169,599

-21,090

9,799

47,267

3,231

58,900

-40,000

-20,000

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

2012

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2018

2019

1Q20

2Q20

The medical office market has remained very strong through the first half of 2020. With the last speculative construction being almost 12 years ago in 2008/2009, the existing MOB market has remained very tight with sub-9% vacancy rates for the last several years. With the steady improvement in the market (pre-COVID-19), we are seeing multiple projects that are ready to break ground on a speculative basis with 30%-60% prelease requirements. Given the market demand, we expect many of these projects to do very well in their lease-up despite the fact that the costs will likely be 30% higher than current market.

In addition to a vibrant leasing market, the appetite for quality medical investments has remained strong from both the medical REITs as well as private capital investors and we anticipate that to continue throughout 2020. During the 2nd Quarter, in the midst of the COVID-19 pandemic, MBRE purchased Union Medical Center (2nd generation MOB space) for $225 per-square-foot or $33.63M.

FEATURED MEDICAL PROPERTIES

2nd QUARTER 2020TOTAL BLDG SF AVAILABLE SF SUBLEASE SPACE VACANCY RATE YTD ABSORPTION LEASE RATE NNN EXP.

1,720,998 140,076 2,289 8.14% 62,131 SF $18.73 $9.84

8.14% Direct Vacancy Rate

8.27% Overall Vacancy Rate

MEDICAL OFFICE MARKET OVERVIEW

PINE CREEK MEDICAL CENTER4160 Royal Pine Dr5,000-45,000 SF

Coming soon!

UNION MEDICAL CAMPUS1625 Medical Center Pt

1,470-12,736 SFNew ownership