Colorado Springs’ formerly fast-growing economy slowed in the first quarter of 2002 as high-technology layoffs that began early in 2001 continued to take their toll. According to the local Colorado Springs Economic Development Corporation, area hightechnology firms cut nearly 4,500 jobs. Hardest hit were the semiconductor manufacturing and software development industries. Several companies either downsized or closed plants; the most recent announcements came from Gateway, LSI Logic, and SCI Systems. Gains in other sectors only partially compensated for the loss of these basic jobs, and by March 2002 the annual gain in the 12-month average wage and salary employment slowed to 0.7 percent. Despite the slowing, Colorado Springs’ job growth has stayed in positive territory, whereas both the State of Colorado and the Denver area saw job declines. The long-term outlook for Colorado Springs is very good because of its hightechnology manufacturing base and healthy tourist industry. However, the local economy’s performance over the next few years will depend on the strength of the U.S. economic recovery and demand for Colorado Springs’ high-technology manufactured products.

Providing an additional platform for economic growth over the next several years will be increased military spending and contracting, primarily at Peterson Air Force Base (AFB), Cheyenne Mountain Air Station, and Shriever AFB. These bases are crucial to the military satellite network, radar systems, and the missile defense initiative. Local defense contractors recently won several large contracts. Lockheed Martin and ITT Industries are expanding their local employment base as they begin contracts worth over $2 billion to upgrade Cheyenne Mountain’s surveillance and warning systems. Also, the area received some recent positive economic news when the Department of Defense announced that Colorado Springs will become the Northern Command for Homeland Defense. The number of military and civilian workers that would be needed at the command center is unknown at this time, but it could be substantial.

Colorado Springs’ slowed economy caused the pace of single-family home construction to dramatically retreat from last year’s record level. According to the Pike’s Peak Regional Building Department, the 974 single-family permits recorded during the first quarter of 2002 were down 23.1 percent from the 1,265 permits issued in the first quarter of 2001. This downward trend is expected to continue throughout 2002. New homes comprise 30 percent of the total sales market. David Bamberger & Associates reported that new sales of entry-level homes priced under $200,000 made up half the market, move-up homes in the $200,000–$400,000 price range captured 40 percent, and sales of luxury homes above $400,000 made up the balance. The unsold inventory of speculative homes more than doubled by the end of last year, with homes priced between $250,000 and $400,000 showing the greatest increase.

Weaker job growth did not dampen the existing single-family sales market, which stayed surprisingly strong during the first quarter of 2002. The Pikes Peak Association of REALTORS^® reported that sales activity through March is approximately equal to last year’s record pace, and the average single-family sales price increased by 8.4 percent to $206,800. With a buildup of both existing and speculative inventories, price increases will likely slow from the 8-percent annual average gain of the past several years.

The rental market has weakened because of the slower economy, a strong sales market, and a wave of new multifamily units coming online. According to an apartment survey by Doug Carter, LLC, the 8.4-percent vacancy rate as of the first quarter of 2002 was the highest recorded since 1991 and a dramatic rise from 3.2 percent a year ago. At the same time, average rent fell by nearly 4 percent and concessions, unheard of 1 year ago, are now common. The report also noted that the market is considerably weaker for newer Class A products in the north submarket, where the current vacancy rate is nearly 18 percent. This high-rent submarket has been hurt by recent layoffs in the high-technology industry, yet it received the bulk of the metropolitan area’s apartment construction. Builders responded to the weaker market by postponing some starts; the number of multifamily permits during the first quarter 2002 was down by 57 percent from the same time last year. Still, approximately 1,600 apartment units were permitted in 2001 that are expected to come online this year. Many are in the north submarket, where the danger of overbuilding is the greatest. A quick return to tighter market conditions in 2002 is unlikely.