Hot market simmers for office, industrial space

The city of Boulder’s office market has been cooking along for several years now. The heat-up that began post-recession reached what some consider a high last year, and the market now looks to have backed down to something of a simmer.

Boulder office lease rates still are remarkably high and are bumping up in new construction, averaging $26 to $27 per square foot gross in the city at large and more than $40 per square foot gross in downtown Boulder, according to Xceligent, the database of record for the Denver metro market. Overall office vacancies are falling below 5 percent in the city of Boulder. As ever, the higher lease rates in Boulder have companies considering the value of being in downtown Boulder as compared with spaces available in east Boulder, the county or down the turnpike in Broomfield. It’s estimated that nearly 200,000 square feet will be brought to market in downtown Boulder this year as companies vacate their spaces, with most of those moving east.

The way office users occupy space has evolved over the years with open floor plans and mobile work stations becoming much more common now. This increased efficiency of space utilization can command a reduction in overall space needs and allow creative companies to consider smaller, tighter office space options. These kinds of spaces can be more common in the central business districts and in an interesting turn of market trends, there are a few companies considering staying there even as they are growing.

The advantages of having walkable amenities and good mass transit options can, in some cases, off-set the problems associated with employee parking. This also can be an increasingly important part of a company’s space search when it’s looking to create locational advantages that appeal to prospective employees who hope to enjoy the urban options of a place such as downtown Boulder.

While Boulder has never been known for its industrial commercial space, there is as little available space in the city now as ever (about 3 percent for industrial flex and less than 1 percent for warehouse space, per Xceligent).  This nearly full occupancy has created all-time high lease rates in Boulder, with average asking lease rates well over $10 gross. The market demand is pushing businesses east when they’re needing industrial space, where in Longmont, Louisville, Lafayette, and Erie vacancy rates are in the 5 percent to 10 percent range with asking lease rates $1 to $2 per square foot less than Boulder. Longmont has larger blocks of available industrial “flex” space which when coupled with its cheaper municipal electric power can make that part of the market very attractive to the manufacturing sector.

Despite the demand for industrial space there are limited proposals for new construction in the area.  Being on the edge of the Denver metro market does not make for decent delivery options for companies considering this market. Consequently, a majority of industrial tenants often find themselves further east of Boulder where both availability and lease rates are more attractive.

Everyone is impressed with the robust Boulder real estate market and wonders when a correction will happen.

As with most businesses, real estate is cyclical and there will be shifts in the market. With this being an election year, most people don’t expect that to happen this year. Interest rates continue to remain low, demand is staying strong, and the impact on prices is that they continue to rise even as they currently simmer.

This has been a great time to be in the Boulder real estate market, and by being careful with your company’s real estate decisions, it likely will be for years to come.

Contact Jim Ditzel of Niwot-based Summit Commercial Brokers at jjditzel@gmail.com or 303-931-7341.

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