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2025 PERFORMANCE (PAST 12-MONTHS)

THE OFFICE SECTOR, with no new speculative office product, modest but steady population and
employment growth, and businesses continuing to rationalize space post-pandemic, is most likely to
experience a slow, uneven “grind sideways” in 2026, with elevated vacancies, tenant-friendly leasing
terms, and modest rent movement rather than a sharp rebound. The Department of War (DOW) sector
continues to look at available space with the anticipation of major government funding coming soon,
however most companies have not been making any decisions as of yet.

THE INDUSTRIAL SECTOR remained one of the region’s strongest performing property types through
late 2025, though activity normalized from the rapid expansion of prior years. Vacancy remained low
by historical standards, supported by continued demand from logistics, manufacturing, and technology
users, while rental rates generally held firm or experienced modest growth for modern, well-located
properties. Although absorption turned negative, this largely reflects the impact of new speculative
construction being delivered to the market. New development became more selective and build-to-suit
driven, with speculative projects concentrated in infill locations or along key transportation corridors
where tenant demand is strongest. Investor appetite remained strong for quality industrial assets,
particularly smaller and mid-size buildings with diversified tenant rosters and functional layouts.

THE RETAIL SECTOR continued to be one of the strongest commercial property types in Colorado Springs during the second
half of 2025. Limited new construction, healthy consumer spending, and continued population growth in key corridors supported
low vacancy and generally stable to rising rents in prime locations. Performance remained highly location-specific, with centers in
growth areas and along major traffic arteries experiencing the strongest competition for space, while older or poorly positioned
properties lagged. Investor and lender sentiment toward retail improved compared to prior years, particularly for grocery-anchored
centers, newly-constructed outparcels, and daily-needs retail.

THE MULTIFAMILY SECTOR moved further into a phase of moderation and gradual rebalancing by late 2025. Following a period
of elevated deliveries, new starts slowed sharply, allowing the market to absorb recent supply and improve occupancy across
many newer projects. Strong population and job growth in Colorado Springs supported absorption, and as the development
pipeline thinned, conditions began to tighten, setting the stage for more consistent rent growth heading into 2026. Investors
remained selective, with the strongest interest focused on well-located Class B properties and newer, stabilized Class A
communities positioned for long-term rent and income growth.

CAPITAL MARKETS for commercial real estate in 2026 are expected to improve meaningfully from the 2023–2025 downcycle,
with greater liquidity, modestly lower borrowing costs, and higher transaction volume. However, conditions will remain selective
by asset type and quality. Overall sentiment is cautiously optimistic. Investors anticipate a “reset” phase in which capital re-enters
the market, though underwriting remains disciplined and the differentiation between winners and losers remains pronounced. Real
estate experts expect modestly lower all-in borrowing costs and improving debt liquidity as banks, agencies, life companies, and
private credit lenders increase origination activity. The MBA forecasts CRE lending to rise approximately 20–25% in 2026.

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Office Market: 30,868,720 SF
The overall market vacancy rate rose from 10.20% to 11.10%. Although we saw a rise in vacancy, Colorado Springs remains a more active market than most given that most large markets in the U.S. continue to see a much larger net loss in occupied space. We feel that vacancy rates will likely continue to trend “neutral” to slightly “lower” in the coming quarters as tenants settle into their new “right sized” space requirements. Office space absorption totaled a net negative of 379,000 SF over the past 12 months, which is an indication of the government delaying the large amount of funding expected to come into this market. We expect absorption to start to rebound going into the 2nd half of 2025 as government funding of contracts is likely to increase now that the election is in the rear-view mirror. Office lease rates dropped to an average of $15.01 PSF, NNN from $15.46 PSF, NNN as a reflection of the rise in vacancy. We expect lease rates to remain steady going into 2026. The one area that is pushing the average lease rates down is the large floor plate vacancies. We expect to see large concession packages for some of the larger floor plate facilities as large tenants are few and far between and over 1 million SF of large floor plate availability on the market. Sales volume has increased by $125.9 MM from this time last year in 2024. This increase in sales volume is more in line with the 10-year average. A couple of large office users made large purchases of vacant facilities which drove sales volume. Sales volume of office space will likely increase into 2026 as some larger distressed properties will sell, and Class A building owners will seek to take advantage of pent-up demand for well-located and mostly leased quality investment product.
Industrial Market: 42,467,092 SF
The industrial market’s overall vacancy rate is currently at 5.5%, up from 4.9% in 2024. As predicted, the vacancy rate has stabilized within a narrow range. Industrial space absorption is tepid with negative absorption of 20,300 SF. The lack of absorption demonstrates that the industrial market has slowed due to demand slowing as well as new construction being added to the market. Currently there is 710,000 sf of new product under construction. We expect any additional new construction of industrial space to be very limited and mostly reliant on developers securing pre-leases of at least 50% for any new space built. Industrial rental rates which stand at $11.65 PSF, NNN will level out as new construction slows. Industrial sales volume totaled $168 MM with the average sale price for industrial facilities at $120 per square foot. Demand for industrial properties is expected to remain strong and outpace other real estate sectors in 2025, though inflation and interest rates may temper some of this demand. Industrial space in Colorado Springs remains relatively affordable compared to other markets, suggesting ongoing positive trends.
Class “A/B” Competitive Office Market:
The Class A/B office sector is showing some weaknesses due to lackluster demand. Now that the new pro-business bill has passed, we expect to see demand pick up in the 2nd half of the year. Demand from smaller tenants continues to be the driver for activity across all three competitive submarkets. The Class A/B market shows the same characteristics as the overall office market in that occupancy is concentrated in office buildings that accommodate smaller tenancies while large floor plate buildings struggle to find tenants looking for larger floor plates. The vacancy rate showed volatility as it jumped to 17.2%, a 3.7% increase year over year. We are beginning to see smaller tenants’ right size which is adding to the overall vacancy in the market. Without significant large tenant activity, large floorplate vacancies will struggle to absorb space and will be forced to become more competitive with lease rates, TI’s and concessions. Average lease rates increased by $0.07 per square foot to $19.73 PSF, NNN in the first two quarters, and rates are likely to stabilize around this level. Speculative new construction remains absent, and investment sales are expected to be limited and opportunistic due to a gap between buyer and seller pricing expectations and rising debt costs.

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The one area that will see lease rates decline coupled with aggressive concession packages will be the large floorplate vacancies. This will be driven by limited leasing velocity by large tenants, 40,000+ SF and space supply of over 1 million SF of large floor plate availability on the market. Sales volume in 2024 thus far has been $32,200,000 which is on track to being far below the ten year average. The sales volume of office space will likely continue to stay flat into 2025. Department of Defense will continue to be a strong economic driver which will help keep the office market more stable than other major markets throughout the U.S.
Industrial Market: 42,467,092 SF
The industrial market’s overall vacancy rate is currently at 4.9%, up from 3.6% in 2023. This sector continues to lead all real estate markets, driven by e-commerce growth, heightened demand for distribution centers, and upstream supply chain challenges. As predicted, the vacancy rate has stabilized within a narrow range due to new construction meeting market demand. Despite the addition of new space, industrial space absorption remains positive at 260,000 SF. We anticipate that absorption will keep increasing as more new spaces are completed. High demand for newly built industrial space is fueling rent increases, with rental rates rising by 10 cents to $11.40 per square foot NNN in the first half of 2024. We expect rental rates to level off as we get closer to 2025. Preleasing new facilities is a prevalent trend in Colorado Springs as industrial demand continues to grow. Logistics facilities are the most sought-after sector, with the average sale price for industrial facilities at $135 per square foot. Demand for industrial properties is expected to remain high and outpace other real estate sectors in 2024, though inflation and interest rates may temper some of this demand. Industrial space in Colorado Springs remains relatively affordable compared to other markets, suggesting ongoing positive trends.
Class “A/B” Competitive Office Market:
The Class A/B office sector has shown notable resilience in the post-COVID market. Demand from smaller tenants is driving activity across all three competitive submarkets, providing stability. However, larger tenants are still rare, creating a challenge for buildings with large floor plates. The market is becoming divided between large and small space buildings, with the northern submarket facing the most concern. Vacancy rate’s showed improvement due to strong small tenant demand which ended the year at 13.5%, a 4.1% decrease from the beginning of the year. Without significant large tenant activity, large floorplate vacancies will struggle to absorb space and will be forced to become more competitive with lease rates, TI’s and concessions. We expect the vacancy rate to slowly rise in the latter half of 2024 into 2025, indicating a more competitive market than currently anticipated. Average lease rates increased by $0.33 per square foot to $19.66 per square foot NNN in the first two quarters, and rates are likely to stabilize around this level. Speculative new construction remains absent, and investment sales are expected to be limited and opportunistic due to a gap between buyer and seller pricing expectations and rising debt costs. The competitive office market is bifurcated and will continue to experience weaknesses in large tenant demand, while smaller tenants continue to drive activity in buildings with smaller multi-tenant spaces for lease.

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