April 7, 2000

Dot-com boom filling up space as fast as it’s built

Higher vacancies misleading

While statistics indicate higher vacancy rates in Boulder County, real estate agents and industry analysts say the market for commercial and industrial space in the Boulder/Denver corridor is as strong as ever.

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As high-tech companies flock to the area from out of state and venture-backed startups seek ground in which to sink their young roots, brokers say commercial office space is being absorbed almost as quickly as it comes online.

“There’s no question, office and flex space is scarce,´ said Bill Baldwin, a senior advisor with Liberty Greenfield Real Estate Advisors in Denver. “This crunch is being driven by growth in the telecommunications, Internet and software industries. We are seeing demand for space from fast-growing local companies as well as in-migration from places like Silicon Valley.”

Baldwin said one of his clients, a tech company that asked to remain anonymous, is relocating to the corridor from Silicon Valley with 60 employees and plans to grow its work force to 150 within its first year here. He said one of the company’s incentives for the move is that it will lower its operating costs by 30 percent.

“This is the place to be right now. Of course the big problem is the lack of space for larger high-growth companies in need of 10,000 to 15,000 square feet or more,” Baldwin said. “You’ve got almost nothing if you need a large block, maybe three spaces in Longmont, one or two subleases in Boulder, not much in Louisville, possibly the Lafayette Tech Center and no relief from new construction deliverables until first quarter of 2001.”

Baldwin said companies are in need of interim solutions and are especially hard-pressed to find contiguous space. As a result, he and his associates try to find out about properties before they are listed in hopes of gaining an edge. Yet vacancy rates published by the Colorado Group and Frederick Ross Co. showed office space availability in the county at the beginning of the year to be more than 11 percent, which suggests an easier market for prospective tenants than at year end 1998.

The past three years have shown fluctuating area commercial vacancy rates, excluding retail, with total vacancy rates for Boulder County between 8 and 9 percent in 1997 and 1998 and just above 11 percent this year. Yet some analysts say current numbers do not reflect the reality of the market.

“If someone outside of the state were to look at current vacancy rates, they’d say ‘Oh my God, they are overbuilt there,’ but if you ask local real estate agents, they’ll tell you there’s no space available,´ said Kevin Thomas, senior vice president of research and marketing at the Frederick Ross Co. in Denver, a firm that has been charting the real estate market in the Boulder/Denver area for the past 30 years.

“The numbers are high, but they are misleading. The rates are spiky because of the methodology we use to put them together. As soon as space comes online, the rates bounce up, which is what just happened in Boulder. Yet that same space is slated for occupancy a few months down the line. The mid-year report will show vacancy rates coming back down again. High-tech tenants are gobbling up space,” Thomas said.

According to a year-end 1999 report by Frederick Ross, more than 1.1 million square feet of new space came online in 1999, while just over 600,000 square feet of that new space was absorbed, resulting in a vacancy rate jump from 4.03 percent to 11.97 percent. The report goes on to explain that the new space is expected to be absorbed quickly this year and that cooperative weather also resulted in many projects being finished earlier than expected, accelerating the pace of new supply and causing the market to look worse than it really is.

The report cites Louisville/Lafayette and Broomfield as the most active sectors in the market. Louisville/Lafayette went from less than half a million square feet to almost a million, with absorption around 200,000. Broomfield went from 323,200 to 685,200 square feet and absorbed almost all of its new construction.

Using Longmont as an example, Thomas said the market in the city is small enough whereby a couple new buildings coming online by a builder such as Pratt can drive vacancy rates way up.

In fact, Longmont boasted the lowest vacancy rates in Boulder County for the past several years, but is currently at 15.8 percent vacancy. Much of this rate hike can be attributed to space availability at the Longmont Business Center, the former home of Storage Technology Corp., which totals 500,000 square feet of space. Companies such as Maxtor Corp. and Seagate Technology Inc. also will free up space when they move into their build-to-suit spaces in coming months, which could spike availability for a while.

“More than 5 percent of Longmont’s vacancy rate is due to the Longmont Business Center,´ said Wendi Nafziger, vice president of the Longmont Area Economic Council. “We have a lot of flex space on the market, but prospect activity has been extremely high.We don’t expect (vacancy) rates to remain high for very long.”

At present, Longmont has more than 1 million square feet of office and flex space available. Seagate plans to move to its new facility in October, and Maxtor sometime next year. Several commercial projects in Broomfield are expected to satisfy growing demand when they come online later this year, including 240,000 square feet of Class A office space at 380 Amber Drive, which is being developed by Prime West Developments Inc. in Interlocken business park.

“We have a window of opportunity to fill space in Longmont,” Nafziger said. “Interlocken and Broomfield are full through December, so we have several months to take advantage of that.”

Don Dunshee, executive director of the Broomfield Economic Development Corp., said the speculative-space market in Broomfield is as hot as he has ever seen it. Dunshee said space at the two proposed 100,000-square-foot Panattoni buildings and space in an eight-building 322,000-square-foot project by First Industrial Trust at the JeffCo Business Center is being spoken for before the projects have even made it through the city’s approval process.

“It’s a wild time at the ranch right now. We’ve got quality companies here offering quality jobs. You couldn’t ask for better. It’s a great time, especially if you are a real estate agent,” he said.

Higher vacancies misleading

While statistics indicate higher vacancy rates in Boulder County, real estate agents and industry analysts say the market for commercial and industrial space in the Boulder/Denver corridor is as strong as ever.

As high-tech companies flock to the area from out of state and venture-backed startups seek ground in which to sink their young roots, brokers say commercial office space is being absorbed almost as quickly as it comes online.

“There’s no question, office and flex space is scarce,´ said Bill Baldwin, a senior advisor with Liberty Greenfield Real Estate Advisors in Denver. “This crunch is being driven…

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