Big tech companies drive changes in Boulder commercial real estate

BOULDER — Big tech companies are having a major impact on the Boulder commercial real estate market, with new leases creating intense competition for locally grown startups seeking office space, and with many of those startups turning to coworking spaces as a more affordable option.

That was the consensus of the “Big Tech Settles In” session at the Boulder Valley Real Estate Conference & Forecast, held Thursday at the Embassy Suites hotel in Boulder.

Panelists included Becky Callan Gamble, president, Dean Callan & Co.; Clif Harald, executive director, Boulder Economic Council; John Koval, vice president and director of development, Coburn Partners; and Chad Henry, broker, W.W. Reynolds Cos. The session was moderated by Geoffrey Keys, president, Keys Commercial.

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Big tech companies that have expanded within or moved operations to the Boulder area include Google, Honey, Uber, Amazon, Twitter, NetApp and many others. As those companies absorb office space, it can create a challenge for locally grown startups that find it difficult to pay higher lease rates — especially in downtown Boulder, where operating expenses can add $20 to $22 to the cost per square foot.

One outlet for startups — and even for some big tech companies — is co-working spaces, which provide numerous amenities while offering flexibility for companies that don’t want to be tied down to long-term leases.

Boulder’s tech economy arguably began with IBM Corp. coming to the community in 1965, or even earlier, with the emergence of Ball Aerospace & Technologies Corp. in the 1950s. But the influx of Fortune 100 tech companies has accelerated, either through the acquisition of local companies (i.e., Google purchasing SketchUp in 2006) or de novo expansions.

“I think it’s a complete evolution, and it’s continuing to grow,” Koval said. But he said accommodating those companies used to be a lot easier, with Boulder developing housing for tech companies in decades past, including the Martin Acres development in south Boulder.

That’s a lot more difficult today, he noted, with lack of available land and surging housing prices.

Callan Gamble said that the loss of Amazon HQ2 to New York City and Virginia is not “a bad thing,” as the region would have had great difficulty filling 50,000 jobs.

“We’re running out of space, and I’m not sure we could have handled that collectively,” Callan Gamble said, noting that the region is doing fine without HQ2, with Boulder recently ranked as the No. 4 most innovative city in the country and with Amazon bringing other jobs to the city and region.

“Amazon does have a presence,” she said. “We’re just not going to have the impact that an HQ2 location would have had.”

Henry noted that beginning in 2015, “We certainly have been seeing significant increases in activity — we’re seeing larger [technology] tenants.”

Additionally, companies such as Galvanize have brought new options for tech companies, with WeWork also entering the Boulder market.

Coworking spaces provide both an outlet for smaller, locally based startups but also for larger companies, the panelists said.

“I think the coworking space is at the infancy of what is happening,” Callan Gamble said, adding that traditional landlords increasingly will compete with coworking spaces, which might offer free WiFi, muffins, flavored water, beer or other add-ons.

Coworking spaces offer office space in small chunks, which have been “very hard to find in Boulder,” she said, adding that coworking space is“definitely here to stay and part of the real estate world that evolves.”

Koval noted that development within the city of Boulder presents numerous challenges, including cost, lack of available land and municipal fees and regulations.

“I think that it’s challenging right now to develop in Boulder,” he said. “It’s challenging even to renovate and modify your buildings.

“We’re challenged pretty hard with trying to create product,” he said. “There’s a lot of time involved in trying to put a development together.”

Harald agreed, saying that he’s concerned about “the cumulative impact of taxes and fees.” Boulder has moved toward a $30-per-square-foot affordable-housing linkage fee on new commercial development.

He said it’s unclear what kind of revenue will be generated by the fee and how the city will deploy those fees, which he said are second only to Palo Alto, Calif.’s $35 fee. Boulder’s fee likely is the highest nationwide on a cost basis, he said.

And he warned that some on the Boulder City Council would like to see the fee climb even higher, perhaps as high as $70 to $75 per square foot.

That could further push startups to other options, either to coworking spaces or even to other communities.