What Does the Colorado Springs Office Market Look Like for Borrowers in 2026?
Colorado Springs' office real estate market presents a complex but opportunity-rich landscape for borrowers and investors in 2026. The sector has experienced more turbulence than any other commercial property type in the metro, with an overall vacancy rate of approximately 11.6% and negative net absorption over the past 12 months as more office space was vacated than occupied. Only around 57,800 square feet of new office space was delivered in the past year, a sign that the development pipeline has largely shut down in response to softening demand.
Despite these challenges, the Colorado Springs office market offers specific niches that lenders continue to finance at competitive terms. The defense and aerospace sector, which accounts for over 40% of the local economy with approximately 111,000 employees across more than 200 companies, generates sustained demand for specialized office, command center, and secure facility space that is largely immune to the remote work trends affecting general office markets.
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Class A office space in Colorado Springs commands asking rents of around $33.96 per square foot, while Class B space averages approximately $21.18 per square foot. The spread between these classes reflects lender preferences: well-located Class A properties with defense sector tenants attract competitive financing, while Class B and C properties in secondary locations face more restrictive terms and higher rates.
The limited new construction pipeline is a silver lining. With virtually no speculative office development underway, the market's recovery will be driven by absorption of existing space rather than competition from new buildings. Forecasters project that the decrease in deliveries will lead to a slow and steady recovery in vacancy rates and rent growth through 2026 and into 2027.
For borrowers exploring commercial loans in Colorado Springs, the office sector requires careful submarket and tenant analysis to identify properties that meet lender requirements in the current environment.
What Office Loan Programs Are Available in Colorado Springs?
Colorado Springs office borrowers can access several financing programs, though lender selectivity has increased substantially as the office sector has softened. Matching your property profile with the right program is critical to securing approval and competitive terms.
Conventional Bank Loans remain available for stabilized Colorado Springs office properties with strong occupancy (85%+ for most lenders) and creditworthy tenant rosters. Rates range from 6.50% to 8.00%, reflecting the office sector's elevated risk premium compared to industrial and retail. Terms of 5 to 10 years with 25-year amortization are standard, and most bank office loans require full recourse.
SBA 504 Loans provide the strongest financing terms for owner-occupied office properties in Colorado Springs. Defense contractors, technology firms, cybersecurity companies, medical practices, and professional service firms purchasing their own office space can access up to 90% financing at fixed rates between 5.75% and 6.75% for 20 to 25 year terms. The SBA 504 program effectively removes the office sector's risk premium for qualified owner-occupants.
Bridge Loans serve office properties with elevated vacancy, tenant transition, or repositioning needs. Rates range from 9.0% to 13.0% with 12 to 36 month terms. Bridge financing enables investors to acquire underperforming Colorado Springs office properties at discounts of 20% to 40% from peak values, fund improvements, and stabilize before refinancing into permanent debt.
CMBS and Conduit Loans offer non-recourse financing for larger Colorado Springs office assets, though CMBS lenders have significantly tightened office underwriting standards. Properties with long-term government or defense tenants may still qualify for rates between 6.25% and 8.00% with 5 to 10 year terms. General market office properties face more restrictive CMBS terms or may not qualify.
Hard Money Loans provide a financing option for distressed office acquisitions that do not meet conventional or bridge lender requirements. Rates range from 10.0% to 15.0% with 6 to 18 month terms and up to 60% LTV. Hard money serves as an entry point for investors with aggressive repositioning or conversion strategies.
Which Colorado Springs Office Submarkets Attract the Best Financing Terms?
Office market performance varies dramatically across Colorado Springs submarkets, and lender appetite follows these differences closely. Identifying submarkets where lenders remain active helps borrowers focus their acquisition strategies.
The Briargate/Interquest submarket in northeast Colorado Springs has emerged as the metro's premier office corridor, driven by the area's newer building stock, proximity to executive housing, and the gravitational pull of the Polaris Pointe mixed-use development. Defense contractors and technology companies prefer this submarket's modern amenities, campus-style settings, and easy I-25 access. Lenders view Briargate/Interquest office properties most favorably, offering the highest LTV ratios and lowest rates available in the Colorado Springs office market.
Downtown Colorado Springs is undergoing a transformation that creates both opportunity and uncertainty for office investors. The approved 27-story mixed-use development signals confidence in downtown's future, while the ArtSpace project and other revitalization efforts are attracting creative and technology tenants. However, downtown office vacancy remains above the metro average, and lenders apply conservative underwriting to downtown office properties unless they demonstrate strong occupancy with creditworthy tenants.
The North/I-25 Corridor benefits from visibility, highway access, and proximity to the Air Force Academy and the northern growth areas. Medical office and professional service tenants cluster along this corridor, providing a tenant base that lenders understand and are comfortable financing.
The Southeast/Airport Area adjacent to Peterson Space Force Base houses some of Colorado Springs' most specialized office space, including secure facilities used by defense and intelligence contractors. These properties command premium rents and attract highly favorable financing terms due to the creditworthiness of their government-connected tenants.
Central Colorado Springs/Academy Boulevard contains a significant inventory of Class B and C office space with higher vacancy rates. While these properties present value-add opportunities, lenders are more cautious with this submarket and may require lower leverage, higher reserves, or stronger borrower credentials.
What Makes Defense Sector Office Properties Unique for Financing?
Colorado Springs' defense and aerospace economy creates a distinct office property category that lenders underwrite differently from general market office space. Understanding these distinctions helps borrowers leverage the defense connection for better financing terms.
Defense sector office tenants, particularly companies with classified programs requiring Sensitive Compartmented Information Facilities (SCIFs) or other security infrastructure, represent the highest-quality tenant profile in the Colorado Springs office market. These tenants invest heavily in facility buildouts, sign long-term leases (often 7 to 15 years), and have revenue streams backed by multi-year government contracts. Lenders recognize this stability and price defense-tenanted office properties accordingly.
The presence of NORAD at Cheyenne Mountain, Peterson SFB, Schriever SFB, and the broader U.S. Space Command ecosystem generates demand for both on-base and off-base office facilities. Contractors often require secure office space within a short commute of the installations they serve, concentrating demand in specific Colorado Springs corridors.
Fort Carson's approximately 25,000 military and civilian personnel generate secondary office demand from contractors, legal firms, financial advisors, and medical practices that serve the military community. This demand layer provides stability for office properties in the south and southeast submarkets.
The Space Force's authorized expansion from 9,800 to 10,400 guardians in the 2026 National Defense Authorization Act signals continued growth in Colorado Springs' space and defense presence, reinforcing the demand outlook for defense-adjacent office properties.
How Do You Qualify for an Office Loan in Colorado Springs?
Qualifying for office loans in Colorado Springs has become more challenging as lenders have tightened standards in response to national office market headwinds. Meeting these elevated requirements demands thorough preparation.
Occupancy thresholds for permanent office financing in Colorado Springs have risen from the pre-2020 standard of 80% to a current standard of 85% to 90% for most lenders. Properties below these thresholds are directed toward bridge financing at higher rates. Lenders want to see not just current occupancy but also lease rollover schedules that demonstrate income stability over the loan term.
Debt service coverage ratio requirements for Colorado Springs office loans range from 1.25x to 1.40x, higher than the 1.20x to 1.25x typically required for industrial and retail properties. The elevated DSCR threshold reflects lenders' concern about potential office tenant downsizing and vacancy risk. You can estimate your property's DSCR using a DSCR calculator.
Tenant credit quality receives heightened scrutiny in office loan underwriting. Lenders evaluate each tenant's financial strength, lease term remaining, renewal probability, and the market's ability to backfill the space if the tenant vacates. Defense contractors with government contracts receive the most favorable credit treatment, while small professional service tenants on short-term leases are viewed as higher risk.
Borrower experience with office property ownership and management is weighted heavily. The office sector's current challenges make lenders reluctant to finance office acquisitions by investors without a track record of successful office property management, tenant retention, and lease negotiation.
What Are Current Interest Rates for Office Loans in Colorado Springs?
Office loan rates in Colorado Springs carry a risk premium relative to other commercial property types, reflecting the sector's elevated vacancy and the broader national uncertainty around office demand. Understanding the rate landscape helps borrowers set realistic expectations and negotiate effectively.
The office rate premium in Colorado Springs amounts to approximately 25 to 100 basis points above comparable industrial or retail financing. This premium narrows for Class A properties with defense tenants and widens for Class B/C properties with general market tenants. A Class A office building in Briargate leased to a defense prime contractor may price within 25 basis points of a comparable industrial loan, while a Class C downtown office building with small-business tenants may face rates 150 to 200 basis points above industrial benchmarks.
Cap rates for Colorado Springs office properties have expanded to reflect the sector's challenges. Class A office cap rates sit at approximately 8.4%, Class B at around 8.68%, and Class C properties with lower occupancy reaching approximately 9.0%. These elevated cap rates create yield opportunities for investors comfortable with the sector's risk profile, but they also mean lower appraised values and smaller maximum loan amounts relative to property income.
The gap between expiring loan rates and current market rates creates particular stress in the office sector. Many Colorado Springs office properties were financed at rates of 4.0% to 5.0% during 2020 to 2022, and refinancing at current rates of 6.50% to 8.00% significantly increases debt service. This dynamic may create acquisition opportunities as overleveraged owners choose to sell rather than refinance.
Using a commercial mortgage calculator helps Colorado Springs office borrowers model the impact of different rate scenarios on debt service coverage and cash flow.
What Office-to-Residential Conversion Opportunities Exist in Colorado Springs?
Office-to-residential conversion has emerged as a national trend, and Colorado Springs presents specific opportunities for investors willing to pursue this strategy with appropriate financing.
Colorado Springs' office vacancy of 11.6% combined with ongoing housing demand creates conditions where conversion can be economically viable for certain buildings. The ideal conversion candidate is a Class B or C office building with a floorplate of 20,000 square feet or less, adequate ceiling heights, and accessible plumbing infrastructure. Downtown Colorado Springs offers the highest concentration of potential conversion candidates, supported by the area's revitalization momentum and residential demand.
Financing office-to-residential conversions in Colorado Springs typically requires a two-phase approach: bridge or construction financing for the conversion period, followed by permanent multifamily or residential financing upon completion. Bridge rates for conversion projects range from 10.0% to 14.0%, reflecting the execution risk inherent in the strategy.
The economics of conversion depend heavily on acquisition price. Office buildings acquired at significant discounts (40% to 60% below replacement cost) can produce viable conversion projects, while those purchased at higher basis points may not support the construction costs required to meet residential building codes, including fire separation, egress requirements, and mechanical system upgrades.
Not every office building is a good conversion candidate. Buildings with deep floorplates (more than 80 feet from the core to the exterior wall), inadequate elevator capacity, or structural systems that resist modification may cost more to convert than to demolish and rebuild. A thorough feasibility study is essential before committing capital to a conversion project.
How Does Lease Structure Impact Office Loan Terms in Colorado Springs?
The lease structure of a Colorado Springs office property directly affects the available financing terms, as lenders underwrite the income stream created by the lease portfolio.
Full-service gross leases, where the landlord pays most operating expenses and passes through increases above a base year, are the most common structure in the Colorado Springs office market. Lenders underwrite these properties using the net effective rent after deducting the landlord's expense burden, which can significantly reduce the NOI used for DSCR calculation.
Triple net (NNN) office leases, more common with single-tenant properties, provide the cleanest income stream for lender underwriting. The tenant pays property taxes, insurance, and maintenance in addition to base rent, creating a predictable landlord income stream. NNN-leased office properties with creditworthy tenants receive the most favorable financing terms available.
Modified gross leases fall between full-service and NNN, with the tenant responsible for some but not all operating expenses. Lenders evaluate the specific expense allocation to determine the property's net income and expense risk.
Lease term remaining is critically important in the current Colorado Springs office market. Lenders strongly prefer leases with 5 or more years remaining, as short-term leases in a market with 11.6% vacancy carry significant renewal risk. Properties with weighted average lease terms below 3 years face significantly more restrictive financing terms.
What Risks Should Colorado Springs Office Borrowers Plan For?
Office property investment in Colorado Springs carries specific risks that borrowers and their lenders evaluate carefully. Proactively addressing these risks strengthens loan applications and improves long-term investment outcomes.
Tenant concentration risk affects many Colorado Springs office properties, particularly those leased to a single defense contractor or a small number of large tenants. If the primary tenant vacates, the property's income stream collapses, and the building may be difficult to re-lease in a market with 11.6% vacancy. Lenders mitigate this risk by requiring higher DSCR, lower LTV, and larger reserves for properties with significant tenant concentration.
Hybrid work risk continues to reshape office demand nationally, and Colorado Springs is not immune. While defense sector tenants generally require in-person attendance for classified work, general office tenants increasingly demand flexible space configurations, reduced square footage per employee, and amenity-rich environments. Properties that cannot adapt to these evolving tenant preferences face elevated vacancy risk.
Capital expenditure risk affects older Colorado Springs office buildings that require roof replacements, HVAC upgrades, elevator modernization, or ADA compliance improvements. Lenders evaluate deferred maintenance carefully and may require capital reserves, repair escrows, or reduced loan amounts to account for anticipated capital needs.
Interest rate risk at maturity is particularly acute for office properties. If the market's recovery is slower than projected, a property may face both lower income and higher refinancing rates at loan maturity, creating a potentially distressing combination. Borrowers should stress-test their exit scenarios under adverse conditions.
How Can Colorado Springs Office Borrowers Strengthen Their Loan Applications?
In a market where lender selectivity for office properties has increased, presenting a compelling application is more important than ever.
Lead with tenant quality. If your Colorado Springs office property is leased to defense contractors, government agencies, medical groups, or other creditworthy tenants, make this the centerpiece of your application. Provide tenant financial statements, lease abstracts, and tenant background information that demonstrates the income stream's reliability.
Document market positioning. Show how your property competes within its specific submarket by providing comparable lease transactions, vacancy comparisons, and amenity benchmarks. If your property outperforms the broader Colorado Springs office market on occupancy or rent, quantify this advantage clearly.
Present a proactive asset management plan. Lenders want to see that borrowers understand the challenges facing the office sector and have strategies to maintain occupancy and income. Detail your tenant retention initiatives, planned capital improvements, and leasing strategy for upcoming vacancies.
Address the elephant in the room. Acknowledge the office sector's challenges and explain specifically why your property is positioned to outperform the market. Whether it is defense sector tenant demand, a prime Briargate location, recent capital improvements, or below-market rent that provides a buffer against downsizing, give the lender concrete reasons to have confidence in the property's performance.
Contact Clearhouse Lending to discuss your Colorado Springs office financing needs and explore the loan programs available for your specific property profile.
Frequently Asked Questions About Office Loans in Colorado Springs
What is the minimum occupancy required for a permanent office loan in Colorado Springs?
Most Colorado Springs office lenders require minimum occupancy of 85% to 90% for permanent financing, up from the pre-2020 standard of 75% to 80%. Properties below these thresholds are typically directed toward bridge financing at higher rates until occupancy improves. Some lenders will consider properties with 80% occupancy if the tenant roster is exceptionally strong (defense contractors, government agencies) and remaining lease terms exceed 5 years.
Can I get an SBA loan for an office building in Colorado Springs?
Yes, SBA 504 loans are available for owner-occupied office buildings in Colorado Springs where the business occupies at least 51% of the space. This program offers up to 90% financing at fixed rates between 5.75% and 6.75% for 20 to 25 year terms. Defense contractors, technology companies, medical practices, and professional service firms frequently use SBA 504 loans to purchase their Colorado Springs office space with as little as 10% down. The program effectively eliminates the risk premium that investor-owned office properties face in the current market.
How do Colorado Springs office cap rates compare to other property types?
Colorado Springs office cap rates have expanded significantly and now exceed other major property types. Class A office cap rates sit at approximately 8.4%, compared to industrial cap rates of 6.0% to 7.5% and multifamily cap rates of 4.7% to 5.4%. Class B office cap rates average around 8.7%, and Class C properties reach approximately 9.0%. These elevated cap rates reflect the risk premium lenders and investors assign to the office sector but also create yield opportunities for investors comfortable with the property type.
What lease terms do Colorado Springs office lenders prefer?
Colorado Springs office lenders strongly prefer properties with weighted average lease terms (WALT) of 5 years or longer. Individual tenant leases of 7 to 15 years, particularly common with defense contractors, receive the most favorable underwriting treatment. Short-term leases (1 to 3 years) in the current market raise re-leasing concerns given the 11.6% vacancy rate. Properties with more than 30% of total rent rolling within the first 2 years of the loan term face restrictive terms or may need to pursue bridge financing.
Are office conversion loans available in Colorado Springs?
Yes, financing is available for office-to-residential and other conversion projects in Colorado Springs, though it typically requires bridge or construction loan programs rather than permanent financing. Bridge rates for conversion projects range from 10% to 14% with 18 to 36 month terms. The key to securing conversion financing is a detailed feasibility study, experienced development team, and a clear path to permanent financing once the conversion is complete. Downtown Colorado Springs offers the most viable conversion opportunities given its walkability and residential demand.
How quickly can I close an office loan in Colorado Springs?
Closing timelines for Colorado Springs office loans range from 30 to 90 days depending on the loan program and property complexity. Bridge loans can close in 14 to 30 days. Conventional bank loans require 45 to 60 days. SBA 504 loans take 60 to 90 days due to the government agency review process. CMBS loans typically require 60 to 90 days. The timeline begins after a complete application is submitted, and office properties may require additional time for tenant verification, lease review, and market analysis given the sector's current challenges.
Navigating Colorado Springs Office Financing in 2026
Colorado Springs' office market presents a nuanced financing landscape where defense sector fundamentals provide pockets of strength within a broader sector that continues to adjust to post-pandemic demand patterns. Borrowers who understand these dynamics, target properties with strong tenant profiles, and present well-documented loan applications can access competitive financing even in the current environment.
The defense economy's outsized presence in Colorado Springs creates opportunities that do not exist in most other secondary markets. Properties leased to companies serving Fort Carson, Peterson SFB, Schriever SFB, NORAD, and the broader space and defense ecosystem benefit from demand stability that lenders reward with more favorable terms.
Contact Clearhouse Lending to discuss your Colorado Springs office financing needs and connect with lenders who understand the Pikes Peak region's defense-driven office market dynamics.