The Rapids conceded in the 12th minute when Real Espana striker Carlos Pavon scored but fought back through Andre Akpan six minutes later.
However, Pavon struck again in the 33rd minute to give the Honduran side a 2-1 victory which leaves Colorado at the bottom of the Group B table with four points from as many matches.
Rapids coach Gary Smith indicated after the match that it would be very tough to get past the group stage as their remaining fixtures are away games at Isidro Metapan and Santos Laguna in El Salvador and Mexico respectively and he admitted he is keen to concentrate on MLS play.
"With the facilities, the travel, those games [will be very tough," said Smith. "Our energy now is in competing again for the MLS championship.
"There were some big opportunities for players in and around the squad (for CL games) and it may have been a bridge too far for some of them," he added. "I did give more credence to this Saturday's game (vs. San Jose in MLS) than this midweek game, that is the reality."