Boulder commercial real estate: Biotech on the rise as office space flags

BOULDER — The COVID-19 pandemic and its aftermath have told a tale of two trajectories for a pair of commercial real estate asset classes — traditional office spaces and biotech-centric flex spaces with office, laboratory and light manufacturing components — in the Boulder market. 

While office users who have largely remained in work-from-home or hybrid mode, leaving their workplaces underutilized, life-sciences companies are champing at the bit for additional square footage in Boulder, a market that’s rapidly becoming one of the industry’s leading regions. 

“The sky is not falling,” said Becky Gamble, CEO of the brokerage Dean Callan & Co. “But that doesn’t mean there aren’t hurdles that we’re anticipating. The most glaring, certainly, is still office and the significant vacancies. Companies just haven’t really fully identified what going back to work looks like and what their hybrid model is. It’s not just Boulder; you’re seeing this all across the country.”

Dean Callan just released its Boulder market report for the third quarter of 2022, which provides some insight into the strengths and challenges facing the commercial real estate industry during a time of uncertainty.

“Construction costs are definitely a hiccup, as are interest rates. When you combine that with a little geopolitical headwind, you’re in a position where everyone is being cautiously optimistic,” Gamble said. “In Boulder, we’ve always operated in a little bit of a silo, but we’re still feeling some of” the challenges facing communities everywhere.

Downtown Boulder, despite its prominence and cachet, has felt the work-from-home sting more acutely than many of its neighbors. 

The district had an office vacancy rate of 27.94% in the third quarter of 2022, up from 26.46% in the second quarter of the year, according to Dean Callan’s report. That nearly 28% figure is up from less than 17% in the first quarter of 2021.

“Downtown is so heavily concentrated with tech users, and tech users were the ones, for obvious reasons, who figured out how they can still be successful and productive working from home,” Gamble said. “… The flipside is, it’s still downtown Boulder — one of the most desirable places for companies that are seeking to have a lifestyle for their employees. …I think the market will come back, but there are a lot of subleases and a lot of direct space. It’s going to take a little bit of time.”

Central Boulder has weathered the storm a bit better. Office vacancies there were 12% in the third quarter, fairly flat over the last year or so. 

“Amenities continue to pop up,” and central Boulder is “very well located, convenient in terms of parking,” Gamble said. 

East Boulder has become the epicenter of the city’s biotech scene, as its sprawling business parks and corporate campus make good candidates for redevelopment into flex-lab spaces. 

The office vacancy rate in this neighborhood was 19% in the third quarter of this year, down from 23% in the second quarter and from 21% in the first quarter 2021, according to Dean Callan’s report. 

“While office leasing has slowed dramatically, life science development is full steam ahead. Approximately 2.5 million to 3 million square feet of construction is either underway or in the pipeline along the Boulder/Denver corridor,” the report said. “This production … will be a big boost to attracting more companies to our market and create even more demand for the R&D product Boulder provides.”

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