The number of Colorado Springs-area apartments standing empty rose again in late 2023, while rents also fell — the fallout from an oversupply of units that have opened in recent years, one industry expert said.

A recently released, statewide report by 1876 Analytics, an affiliate of Denver-based Apartment Appraisers & Consultants, shows Colorado Springs’ apartment vacancy rate for the fourth quarter of last year climbed to 7.5% from 7.2% in the third quarter. Vacancies also increased a full percentage point from 6.5% in the fourth quarter of 2022.

Local rents, meanwhile, averaged $1,456 a month in the fourth quarter, down $11 from $1,469 in the third quarter and $23 from $1,479 in the fourth quarter a year earlier, according to the 1876 Analytics report, which is sponsored by the Colorado Housing and Finance Authority and uses data for the Springs and Front Range markets from online research firm Apartment Insights.

The latest vacancy rate increase and rent decline continue trends in Colorado Springs’ apartment market that have been bubbling to the surface over the last several quarters, 1876 Analytics reports show.

The local vacancy rate had fallen to as low as 3.8% in the second quarter of 2021, when single-family homes for sale were in short supply and apartments were in high demand. Since then, vacancies have climbed, reaching as high as 7.6% in the second quarter of last year, according to 1876 Analytics.

Meanwhile, average rents — driven, in part, by the opening of pricey downtown apartments and amenity-filled complexes in fast-growing suburban areas — peaked at $1,510 a month in the third quarter of 2022 before they began to slide.

A co-author of the 1876 Analytics reports warned last year that Colorado Springs probably would experience higher vacancies and lower rents because of a surge in apartment construction. 

And that’s just what is happening, said Kevin McKenna, an executive vice president with the Denver office of national real estate firm CBRE and who has tracked the Colorado Springs multifamily market for several years.

On the one hand, apartments remain in demand, McKenna said. But that demand can’t keep pace with the increased supply of apartments, many of which are opening now after being in the planning and construction stages over the last few years, he said.

“There’s quite a bit of supply coming on,” McKenna said. “The demand is certainly very strong and the gap between the affordability of a home versus renting has never been higher. But we also are putting a lot of units on line at once, and it’s just going to take a little bit of time to get them absorbed.”

What’s happening in Colorado Springs also is taking place in markets across the country, including Denver, McKenna said.

In the case of Colorado Springs, a combination of factors led to the influx of apartments.

Record-setting rents in the Springs caught the attention of developers. Likewise, interest rates were lower and, along with cheaper land and building costs in Colorado Springs when compared with Denver and other cities, made it an attractive market for several out-of-town and out-of-state developers, who joined local companies that also planned multifamily projects.

The result: the Pikes Peak Regional Building Department recently estimated that 3,058 apartments were completed and opened to renters in 2023, and that nearly 8,900 additional units are under construction and will be added to the area’s multifamily inventory this year and beyond. 

“Frankly there was a need for it,” McKenna said. “I think the Colorado Springs market was undersupplied.”

It’s difficult to forecast how long the trend of higher vacancies and lower rents will last, McKenna said, though he doubted it will continue for years. Also, though rents have dropped, the fourth quarter, year-over-year decline of just $23 means they’re essentially flat, he said. 

Colorado Springs’ quality of life makes it an attractive place to live, while local business leaders have said employers plan to add more than 4,200, high-wage positions over the next few years. Those job announcements will boost the number of renters in the area, McKenna said.

“The economy is really ripping along,” he said of Colorado Springs. “And, again, a lot of these new jobs are going to create renters. Most of these people most likely will be renters and will need a place to live.”

He added: “All of these units will get absorbed, it’s just a matter of when. When you drop a bunch of units at once, it’s going to take a bit of time to get them absorbed.”

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