Corridor’s day arrives; lease rates start to rise

Lease rates for office space along the Denver/Boulder corridor on U.S. 36 have climbed

dramatically in the last 18 months, as Sun Microsystems Inc. moves into the Interlocken office park and other high-tech companies search for expansion space in the area, commercial real estate professionals say.

In the last year and half leasing rates have increased substantially from $11 per square foot in some buildings to $17 to $18 per square foot now, said Ryan Cunningham, senior vice president of LaSalle Partners, the tenant representative for Sun Microsystems.

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“It’s shocking to see what demand has done to office rates in that corridor,” Cunningham

said.

Much of the existing office space in the area, however, is Class B, consisting of concrete

exteriors and no building lobby, he said.

With the exception of a six-story building being constructed at Interlocken, which will

feature cherry wood in the elevators and granite in the lobby, there’s very little Class A space going up or already existing there.

“Rates can’t keep climbing the way they have been. This is awfully expensive for this kind of product,” Cunningham said.

With some 850,000 square feet of office space planned along the corridor, leasing rates are bound to level off eventually, he said.

He said some of his clients located in Boulder that wanted to double their office space

couldn’t find expansion room in Boulder and now are moving to the corridor.

Sun Microsystems’ move to the area has combined with growth restrictions in Boulder to

result in more companies relocating to Broomfield and Louisville, he said. “That’s where the supply is. Rates have gone up so quickly,” Cunningham said.

Sun Microsystems already has moved into two temporary buildings at Interlocken and will occupy 180,000 square feet there by March, he said. An entire campus for the company will come on-line in late 1998, he said.

“Interlocken had been around for so long and had not really kicked off. Sun Microsystems finally confirmed that the corridor was a high-tech corridor,” Cunningham said.

Garrett Brown, spokesman for Interlocken, said the office development has 10 projects

under construction that will add 2 million square feet. The office park, which opened in 1982,

already has 1 million square feet of office space. Interlocken only sells developed sites, he said.

“Supply has had a tough time keeping up with demand. It’s a supply and demand issue,”

said Dave Johnson, of Ernst & Young who handles corporate relocations for businesses.

Johnson said a substantial amount of office space will become available in 1998 as a

response to the growing demand. Much of it has been driven by high-tech companies from

Colorado and outside the state.

“It’s more of an industry phenomenon. With the Sun Microsystems deal, that put it on the

map,” he said.

He noted that the labor supply for the high-tech industry is available here with the

University of Colorado able to attract and retrain employees, and many technology businesses are already located here.

Susan Grafton, Westminster’s economic development manager, said lease rates along the

corridor have been going up for the last year as the area becomes more popular. Part of the reason for the increase has been the lack of office space along the corridor, but that is changing now with more product coming on-line, she said.

Sun Microsystems is part of the mix that is contributing to the growth. “They brought a lot of awareness to the corridor,” she said.

Richard Mower, manager of investor relations for the Broomfield Economic Development Corporation, said lease rates along the Boulder Corridor appear stable, ranging from $15.50 to $17 per square foot.

Office space in Broomfield is about 95 percent occupied, he said. “We’ve averaged over

the last year about 95 percent to a 96 percent occupancy rate,” he said.

He noted that Panattoni-Catlin is developing three buildings at Interlocken and there’s a

42,000-square-foot space also being developed. East of the Panattoni site is a 175,000-square-foot Class A office building going up between Colo. 128 and the Jefferson County Airport south of Interlocken, he said.

Tim O’Byrne, managing member of Inland Pacific Colorado, the developer of the gigantic Westminster Promenade project at 104th Avenue and U.S. 36, said Sun Microsystems’ move onto the corridor has enhanced the commercial real estate there.

“That’s helping out tremendously,” he said. “The whole Boulder corridor is right for the

highest class office users. That’s what I’m seeing.”

The Westminster Promenade includes a Westin Hotel and Conference Center, a 24-screen

AMC movie theater, a three-rink ice arena, and many restaurants and retail shops. Construction on the project is expected to begin in the first quarter of 1998.

The Promenade will include 150,000 square feet of office space. Rents will be in the $18

range per square foot.

O’Byrne noted that business services — hotels, photo shops and other support companies — have increased in the area and some businesses located in south Denver are now looking at moving to the Boulder corridor where there is less traffic congestion than along Interstate 25.

The proximity to Denver International Airport also is a plus, he said. “There are a lot of

factors driving the whole market,” he said.