BOULDER — The commercial real estate market in downtown Boulder has softened in the last few months as large tenants have announced they are moving and new office space is being built.
With recent announcements of SendGrid, Twitter and Solid Fire vacating space downtown or moving within Boulder, the sublease market just got bigger, and with an estimated 235,000 square feet of office product in the pipeline, it could become a short-term renter’s market.
Send Grid is moving to Denver, Twitter Communications is moving a couple of blocks from 11th and Walnut to 13th and Walnut to the Wencel Building, doubling its space, and Solid Fire is consolidating four separate offices east of the Pearl St. Mall to Pearl West, a new mixed-use building at 11th and Pearl streets finishing up construction.
How much lease rates will be affected depends at what rate this new found space, mostly through companies that are moving out or consolidating space, will be absorbed.
“We know it’s coming, but we won’t get a good handle on this until the first quarter of 2017,” said Becky Callan Gamble, president of Dean Callan & Co. Inc., and one of the dozen real estate brokers who participated Tuesday in BizWest’s CEO Roundtable on Real Estate & Development.
Gamble estimated that lease rates in downtown Boulder are ranging between $25 to $36 per square foot triple net.
Jeff Wingert, a partner at W.W. Reynolds Cos., said about 2 percent of downtown space is available through sub-leasing, space that is under contract with “older, lower rates.”
There also is several hundred thousand square feet of new construction and renovated office space in the pipeline. Wingert said the new product likely will lease in the mid-$30 per square foot range.
Tech companies wanting to be in the heart of Boulder, are capable of paying the rates, but whether they will stay in one place seems to be the big question.
“Tech companies don’t know what they will do beyond eight months,” said Lou DellaCava, owner of LJD Enterprises, who is leasing a building to Google at Pearl and 28th streets. Google hasn’t said if it will continue to lease there after it moves in fall 2017 into a 300,000-square-foot campus under construction at the southwest corner of Pearl and 30th streets.
Stephen Tebo, chief executive of Tebo Properties, said that continued raising of taxes in Boulder drives high rates. “We’ve had more push-back than ever before (from tenants) because of higher taxes in Boulder,” he said.
Steve Eaton, vice president of Texas-based Goff Capital Partners, which owns 16 buildings and 700,000 square feet of space in Flatiron Park in east Boulder, said the park is shifting from low to high density units, with smaller companies making the move there from downtown Boulder.
Goff Capital also owns a large portion of The Campus at Longmont, where Eaton said larger spaces are attracting research and development-based companies.
“Longmont is affordable, and it’s a great place to live. It is a good market for us.”
The Colorado Technology Center in Louisville is another attractive location, said Paul Kresge, vice president and broker associate of Vista Commercial Advisors Inc. He said industrial space goes for about $9 per square foot.
DellaCava said industrial properties in Boulder are shifting in purpose.
“Small manufacturers need stability and need to pay only 10 percent of their revenue on rent. They can’t afford it here (Boulder.)”
Keith Burden, president of Burden Inc., said companies are taking a good educated look at Longmont.
Allen Ginsborg, managing director and principal of NewMark Merrill Mountain States, explained the food-heavy mix of tenants at his new Village at the Peaks outdoor shopping center in Longmont that replaced the Twin Peaks Mall, an indoor center.
“Food is a big piece of Gen Y spending,” he said, adding that he is “astounded by the sales numbers in Longmont.” He addressed the lack of clothing stores saying that the fashion industry has suffered the most in the age of online sales. “Companies are either disappearing, consolidating or recapitalizing,” he said.
Jim Loftus, owner of Loftus Developments Inc., said the uptick in apartment construction will “be strong through 2018, after that we’ll see. If it’s on the drawing board now, build it quickly.”
Developers agreed that the city of Boulder’s time-consuming approval process and demands can cost money, stretching out timelines while construction costs increase. “Construction costs have been increasing at a rate of 1 percent per month for quite a while,” Tebo said.
Chris Jacobs, a partner of Element Properties, said they intentionally designed S’Park, a mixed-use project, to meet all of the city’s vision for the Transit Village area Element is building in. S’Park met the city’s requirements for density, and a combination affordable housing and market-rate pricing. “We came up with elements that would be approved. It was more complicated, but it met all values named in the Transit Village plan and the planning board approved it 7-0.”
Steve Erickson, chief investment officer and equity principal for Boulder Creek Neighborhoods, said the builder has created a new product to meet the needs of empty nesters looking to downsize and also pay less.
The Wee-Cottage is a home that is about 900 to 1,100 square feet of living space but has quality amenities at a lower price point.
Erickson said the company is finding interest is increasing for its homes in Longmont and Erie.
D.B. Wilson, managing broker of Re/Max of Boulder, said Boulder is ending the current period of fast appreciation of home values, that have soared in recent years.
“There isn’t much to buy here (Boulder). We had a listing with 76 offers. We’ve lost the low-end market in Boulder … Longmont is your best shot now.” he said. People are looking to Larimer, Weld and Denver counties because they can get “more house for the price.”
Participants in Tuesday’s CEO Roundtable included: Keith Burden, president, Burden Inc.; Lou DellaCava, owner, LJD Enterprises; Steve Erickson, chief investment officer/equity principal, Boulder Creek Neighborhoods; Steve Eaton, vice president, Goff Capital Partners; Becky Callan Gamble, president, Dean Callan & Co. Inc.; Allen Ginsborg, managing director/ principal, NewMark Merrill Mountain States; Chris Jacobs, principal, Element Properties; Paul Kresge, vice president/broker associate, Vista Commercial Advisors Inc.; Jim Loftus, owner, Loftus Developments Inc.; Stephen Tebo, CEO, Tebo Properties; D.B. Wilson, managing broker, Re/Max of Boulder; Jeff Wingert, partner, W.W. Reynolds Cos. Moderator: Christopher Wood, co-publisher/editor, BizWest Media.