Colorado Springs Bounces Back From Its Technology Tumble

By Mark Ingebretsen
Special to The Wall Street Journal Online

The military, insurance and professional services -- plus an expected boost from a large planned community -- are helping Colorado Springs recover from the painful tech meltdown.

A metro region of more than 500,000 residents some 70 miles south of Denver, Colorado Springs lost 8,000 or more tech jobs after the dot-com bust, with many of them in high-paying areas such as chip making and disk-drive manufacturing shifting permanently overseas.

The Defense Department is leading the rebound. Over the next several years, between 9,000 and 12,000 additional Army personnel are slated to be relocated to Fort Carson as part of a Defense Department plan to reduce overseas outposts in favor of a more rapidly deployable U.S.-based force. Of those troops, 70% plus their families are expected to live off-base, creating a population influx, by some estimates, of 38,000. In addition, Peterson Air Force Base east of downtown is headquarters of the Air Force Space Command.

Development of 21,000-acre Banning Lewis Ranch, a mixed-use project in Colorado Springs, will take several decades. Plans call for a series of villages anchored by community centers such as the one depicted here.

Defense contractors aren't far behind. In June, software provider SI International Inc., of Reston, Va., received a $14 million award to provide technical assistance to the Space Command and the North American Air Defense Command nearby. Northrop Grumman Corp. of Los Angeles is building a 125,000-square-foot facility near the city's airport to consolidate current operations and plans an adjacent 110,000-square-foot building.

Meanwhile, a regional branch of AAA, the automotive, travel and financial-services association based in Heathrow, Fla., together with Mayfield, Ohio, auto insurer Progressive Corp., have located call centers in the area over the past two years. Many workers displaced by the tech crash have stayed put and launched small consulting firms.

During the first half of 2006, commercial absorption, or the amount of space newly occupied, grew by more than 1.5 million square feet, or almost double the increase in the year-earlier period, according to a report by Turner Commercial Research in Colorado Springs. The report also noted that industrial-space occupancy levels grew by 619,339 square feet, nearly a 50% jump from the year-earlier increase. Office-space occupancy levels gained 512,469 square feet, a 45% increase. Shopping-center absorption, which declined by more than 6,000 square feet during the second quarter of 2005, surged by 399,843 square feet during the first half of 2006, according to the report.

"This is the best year we've ever had," the report's author, Paul M. Turner, says.

In all, 50 industrial, office and shopping center projects were completed in the second quarter -- a total of one million square feet, the Turner report adds. Less than 10% of the new space remains vacant. An additional 29 projects are being built, while 41 more are in the planning stages, the report says.

The job market reflects the gains. During the first five months of 2006, the unemployment rate fell to 4.5% from 5.4% in the year-earlier period, slightly below the June national average of 4.6%.

Apartment vacancy rates fell to 9.8% in the first quarter this year from 13.4% a year earlier, still soft but "significantly improved," according to the Department of Housing and Urban Development. Nationally, the first-quarter vacancy rate was 9.5%.

Colorado Springs is expanding in several directions. Big-box retail is growing along a three-mile strip on the city's east side. To the northeast, the community of Falcon has seen significant residential growth, with retail and other services following home construction.

The biggest project is Banning Lewis Ranch, being built by Capital Pacific Holdings Inc. of Newport Beach, Calif. The initial phase is set to open early next year. It encompasses 21,000 acres with a mixture of homes, schools, retail and light industry. Over 30 to 40 years, 75,000 homes could be built.

That's a substantial development in a region where scarce water supplies can easily quash expansion plans. But Colorado Springs has secured the water rights to keep taps flowing until 2039, with enough water to serve 560,000 people -- or nearly 200,000 more than the current population of the city itself, a representative for the utility says.

Those water rights will enable work to continue on Banning Lewis Ranch, located inside the city limits. To safeguard their own expansion plans, though, some communities surrounding Colorado Springs may need to scramble to secure increased water supplies. "Water is king in the West," says Fred Crowley, associate director of the Southern Colorado Economic Forum.

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