The red-hot pace of Colorado Springs-area apartment construction turned ice cold last year.

From 2019 to 2023, multifamily developers pulled permits to build just over 14,000 apartments in the Springs and surrounding El Paso County — one of the hottest stretches of local apartment construction in recent memory that averaged a little more than 2,800 units a year, according to recent and historical Pikes Peak Regional Building Department figures.

Developers, however, did an about-face in 2024 and took out permits to build just 838 apartments — a nearly two-thirds drop when compared with the previous year and the fewest since 2015.

Why the turnaround in what otherwise had been a robust market for apartment construction?

Until 2024, multifamily developers were riding high — attracted to the Colorado Springs area, in part, by its growing population and rising rents that would provide them with a solid rate of return on their investments, some local experts say.

“Developers look at rent increases, get excited and want to develop,” said Gary Winegar, investment services president of Springs-based real estate company Griffis/Blessing, which manages more than 12,000 apartments in Colorado and Kansas. “We had nice rent appreciation, so there was lots of wind at the back of the apartment industry — demographics, young people wanting to be more mobile and a nationwide housing shortage.”

Apartment projects sprang up in several fast-growing areas, including north and northeast Colorado Springs, Fountain to the south of the city and Monument in northern El Paso County.

Several apartment projects also were built in downtown Colorado Springs, which had been a housing desert for decades.

In downtown, developers were able to reap substantial tax benefits by building in a federal opportunity zone — areas created by the 2017 federal tax cut to spur investment in distressed areas. Downtown’s opportunity zone attracted some of the nation’s largest multifamily developers, who also could borrow at rock-bottom interest rates until the Fed began hiking rates in 2022.

“Some of the big players with cheap money that they could throw out there on what was seen as a safe return drove a lot of the big guys to come here. Everything was in the multifamily industry’s favor,” Winegar said.

But the apartment market changed dramatically last year.

Rents leveled off and even declined in recent quarters, which is a trend some experts have said could have been the byproduct of too much supply.

In Colorado Springs, average monthly rents fell from $1,510 in the third quarter of 2022 to $1,437 by the second quarter of 2024, while the vacancy rate over that same time rose from 6% to 7.3%, according to data compiled by 1876 Analytics, an affiliate of Denver-based Apartment Appraisers & Consultants and whose apartment market reports are sponsored by the Colorado Housing and Finance Authority.

Higher interest rates, meanwhile, made financing new apartment projects more difficult and construction costs also rose significantly, Winegar said.

For areas such as downtown, where thousands of new apartments have opened, owners are offering up to two months of free rent to tenants who sign 12- to 15-month leases to fill up their new complexes. That’s good news for tenants, but also means developing new apartments “just doesn’t pencil out,” Winegar said.

“Now the winds have changed, and the rental market downtown will be challenging this year,” he said. “We are already seeing the impact on rents as new units come online, especially when not a lot of people are moving this time of year.”

So, after the years of frenzied construction, will the recent slowdown in apartment development lead to a significant decline in the number of new apartments available for renters — reducing their choices of places to live?

Probably not.

Despite last year’s reduction in the number of apartments planned by developers, thousands of new units remain in the development and planning pipeline.

The Pikes Peak Regional Building Department, the joint city-county agency that oversees local construction, estimates the number of apartments that were completed and opened to renters totaled 3,795 in 2024, which followed 3,058 that opened in 2023.

Heading into 2025, Regional Building Department officials estimate about 6,000 apartments currently are under construction in the Colorado Springs area; of those units, a similar number to those that opened in 2023 and 2024 are expected to debut this year, the agency says.

Likewise, developers have more apartments on the drawing board. Another 7,000 units are in the planning stages, according to the Apartment Association of Southern Colorado, though it will take a while for them to move forward.

Laura Nelson, executive director of the apartment trade group, said developing a new apartment project takes three years from the planning stage to opening. As a result, developers who plan apartments now won’t open them until 2028.

Developers also must persuade lenders and investors of the viability of their projects based on current market conditions, which means some aren’t feasible at current interest rates, construction costs and market conditions.

Even though rents declined over several quarters from 2022 into 2024, and vacancy rates climbed, those trends might be turning around, which could make apartments attractive down the road for developers.

The latest report from 1876 Analytics showed that average monthly apartment rents in Colorado Springs rose slightly in the third quarter to $1,451 from the previous quarter’s $1,437. The third quarter vacancy rate dropped to 6.3% from 7.3% in the second quarter — meaning an uptick in apartment occupancy.

Industry officials said strong absorption — or leasing — of new complexes stems from several factors: apartment rents often are cheaper than mortgage payments; many young people don’t want to be tied to a home and a mortgage payment, especially if their job takes them to another city; and older residents and empty nesters want to downsize to maintenance-free residences.

Other factors include the area’s population growth, strong economy and job growth.

Winegar expects the Colorado Springs market will take two to three years to absorb all the apartments that have recently opened and the units now under construction, meaning vacancies could start to decline and rents might begin to increase in 2027-2028.

“If you’re an apartment owner, it is challenging right now with rents steady or going down,” Winegar said. “It is a cyclical industry. Once we absorb all these apartments, the market will improve. There is always a bit of lag. It is all supply and demand. I assume there will be demand because Colorado Springs is still a desirable place to live, so we will see modest rent increases, but nothing off the charts. We will probably just tread water for a year or two.”

Nelson, of the Apartment Association, said most new complexes complete initial leasing in about a year, and she believes the Colorado Springs market will absorb without difficulty most of the apartments now under construction that will open in the next year or two.

“We need whatever (apartments) we can get as long as we continue to grow. Rental housing is critical to a thriving economy — you need plenty of options at a variety of price points,” Nelson said. “I’m hoping we start having more permits pulled (for apartments) so when these units under construction are done, there will be more coming behind them. We still have a shortage of all types of housing in Colorado Springs.”

Kevin McKenna, executive vice president of commercial real estate brokerage CBRE in Denver and a broker who specializes in Colorado Springs apartments, said the local market is “going through a natural cycle of supply and demand.”

He expects the construction slowdown won’t last beyond this year and, in 2026, the market likely will resume its historical pace of completing 1,000 to 1,500 units annually with 3% to 4% annual rent growth.

Developers, however, might face an uphill battle to resume construction, even if the apartment market recovers quickly, because borrowing rates could remain at elevated levels that would make financing new construction much more difficult. The Fed cut interest rates three times last year but after the most recent cut, the central bank reduced the number of cuts it expects this year by half to just two over fears of accelerating inflation.

“That (scenario) is entirely possible, which would mean the market could end up with falling vacancies and rising rents” in a few years if construction remains slow even after most units have been leased, McKenna said. The number of units absorbed this year likely will exceed the number coming on the market for the first time in many years because demand for apartments in Colorado Springs remains strong, he said.

Tatiana Bailey, executive director of Data Driven Economic Strategies, a Colorado Springs economic research firm that specializes in workforce development, said apartment construction will continue during the next few years despite the flood of new units coming on the market. That’s because the area still has a shortage of 8,000 to 9,000 housing units, especially apartments designated as affordable that are leased to low- and middle-income tenants.

“In this building frenzy, did we build enough affordable units? Probably not,” Bailey said. Developers are “building high-margin properties with rents of more than $2,000 a month” that teachers, police and other middle-income workers might not be able to afford, she said.

All of the units coming on the market have not scared off two apartment developers.

Kevin O’Neil, who heads the Colorado Springs-based O’Neil Group, a private equity firm, is moving ahead with plans for ONE Vela, a 400-unit, 27-story upscale apartment tower in southwest downtown. Seattle-based Weidner Apartment Homes hopes to break ground by early next year on the more than 400-unit second phase of its Experience at Epicenter apartment complex adjacent to Weidner Field, also in southwest downtown.

O’Neil said the ONE Vela apartment tower is a unique project — “the highest-end units where anyone would want to live” — and will not be completed until 2027, when many units now under construction are likely to have completed initial leasing. He also owns three local apartment complexes and said he wouldn’t develop another large-scale project now because he believes the market is saturated.

Weidner’s plans for the second and third phases of its 1,200-unit Experience at Epicenter remain on schedule along with another unnamed complex the company plans in northwest Colorado Springs, said Greg Cerbana, Weidner’s vice president of public relations and government relations.

Leasing activity has been strong at Experience at Epicenter since the first apartments were opened in September with 160 units leased through mid-January, he said.

“We are committed to the Colorado Springs market for the long term. There is no scenario in which the remaining phases of Epicenter would not be built,” Cerbana said. Company founder Dean Weidner graduated from the former Wasson High School in Colorado Springs.

“There is tremendous interest in class A (apartment) buildings. We saw the most leasing activity at Epicenter in December and that continued into January with minimal incentives. The initial leasing at other projects has had minimal impact on our properties in Colorado Springs (16 complexes).”