Low vacancy rates and relatively stable rents are helping keep Boulder’s commercial real estate market humming, while still making room for the development of new office and retail space that’s gradually coming online.

The new commercial spaces take care of the increased demand from local companies looking for room to expand, and businesses considering a move to Boulder, said Becky Callan Gamble, president of Dean Callan & Co., Inc., a real estate company specializing in commercial brokerage, development, property management and investment acquisitions in Boulder County.

Cliff Grassmick/Staff Photographer

The Reve,, which willl include retail, office and apartment space is under construction at 30th and Pearl streets.

The availability of an educated and skilled workforce makes it attractive for companies in the tech space to locate to Boulder, she said, adding she often fields inquiries from out-of-state businesses about leasing space.

Factors involved

Boulder’s diversified economy and new projects in other Boulder County communities also help maintain a balance in Boulder’s commercial real estate market, Callan Gamble said. There is a lot of interconnectedness in Boulder County and the greater metro area, she said.

Limitations to building in Boulder also keep the market stable, she said. Regulatory requirements often slow down projects, preventing undue upheavals. Often entrepreneurs start small and as they grow, their demand for space increases proportionately. This leads to a demand consistency locally, she said.

“We are still very much an entrepreneurial community,” Callan Gamble said.

Over the years, construction and remodeling of Boulder’s industrial, office, and commercial/warehousing space have followed a different trajectory seemingly guided by demands in their own sectors

In first quarter 2019, Boulder had a total of 10,521,192 square feet of industrial/warehouse/flex space; 7,241,768 square feet of office space; and 4,543,729 square feet of retail space, according to Boulder Economic Council data.

By the end of next year ongoing mixed-use projects such as S’PARK on Valmont Road, The Rêve at 30th and Pearl streets, and Boulder Commons Phase II on Junction Place, along with a new 56,000-square-foot office development at 5505 Central Ave., are poised to add substantially to office and retail space in the community, Callan Gamble said.

Popularity of mixed use

In Colorado, mixed-use developments are considered commercial, said Ron Throupe, an associate professor at the Burns School of Real Estate and Construction Management in the Daniels College of Business at the University of Denver.

“That’s how tax assessors define it by state law,” he said.

A vacancy rate of 10% and below gives room to build more, he said. Boulder is a desirable location for tech entrepreneurs, and the ongoing job growth helps absorb the available office space, he said.

Employment growth is driving both commercial and residential real estate markets, said Kevin House, vice president of multifamily development for the West at Southern Land Co. Southern Land is developing The Reve project and expects to complete it by March 2021.

“We focus on mixed-use projects. We build retail as a complement to our office and residential space.” he said.

The Reve features 242 residences, 24,500 square feet of retail space and 124,000 square feet of office space, according to the project website.

High barriers to entry makes Boulder an attractive market, House said. It creates a lot of value for a project, which becomes an asset and a source of revenue generation, he said. His company typically looks at rental rates, vacancy rates and projected employment growth in a community before deciding to invest in projects there.

In Boulder County, the three top job sectors are professional services (16% of all jobs); government services (15%); and health services (11%), said Teo Nicolais, an instructor at Harvard Extension School teaching courses in real estate, citing most recent data from the U.S. Census.

Demand for office space is driven by employment in the services sector, he said.

In Boulder, the supply of new office, retail and industrial space is gradual, which makes potential investors look at the available commercial real estate as a place to park their money.

“We haven’t built a lot of space in retail,” said Stephen Tebo, founder and owner of Tebo Properties.

Safe investment opportunity

Recently, Tebo bought The Registry at 1113 Spruce St. (a 19,000-square-foot building) for $6.5 million.

Jeremy Papasso/Staff Photographer

Stephen Tebo stands in front of his recently purchased property at 1113 Spruce St. in Boulder on Sept 11.

“The capitalization rate (the ratio of net operating income to property asset value) has gone down,” Tebo said.

Investments in Boulder’s real estate market will continue to remain strong, he said, adding his company is aggressively buying in Boulder.

A lot of retail space has been torn down for residential or office purposes close to downtown, Tebo said. And the city’s proposed zoning changes that aim to limit office space will escalate prices, he said.

Boulder City Council has been discussing proposed changes to land uses that emphasize the creation of affordable housing and preservation of retail uses. Those considerations are tied to the lifting of a moratorium on on demolition and development in the city’s federal opportunity zone, a census tract running generally between 55th and 28th streets and Diagonal Highway and Arapahoe Avenue.

The President Trump-led opportunity zone program created in 2017 allows for capital gains taxes to be deferred if those gains are used for real estate investments. The program also defers future appreciation. If capital gains-based investments are left in place for longer than 10 years, taxation is excluded completely. Boulder staff signed up for the opportunity zone program with hopes of spurring redevelopment at Diagonal Plaza.

The moratorium, enacted in December 2018, is aimed at allowing city officials to update land use codes for the 18 zoning districts of which it is comprised. Among the proposed land use changes for those districts is limiting office uses to 25% of a building’s floor area in business zones; up to 50% if affordable units are provided on site. Those changes also would apply to zoning districts across the city, excluding the University Hill Commercial District.

Andrea Meneghel, director of public affairs for the Boulder Chamber, said, “The office limitations that were proposed significantly impact existing buildings and small businesses the most; they limited what could be done and required owners and tenants to go through an expensive lengthy process to expand their spaces.”

Council at its Sept. 3 meeting asked city staff to bring back tweaks that would prevent many office spaces throughout the city from becoming nonconforming to code, such as exempting structures that existed before a certain date or using a certain size of building as a trigger for the additional review process of office space taking up more than a quarter of a structure.

“We’re glad we were able to articulate the number of properties impacted to council and that they are revisiting the office regulations before moving forward with use table changes,” Meneghel said.

Tebo said Boulder’s commercial real estate remains attractive to investors. His company owns 250 properties, about 200 in Boulder County and about 80 in Boulder. The mix is 60% retail, 20% office and 20% industrial, he said. About 98% of Tebo’s properties are rented. Downtown Boulder is rented 100%, he said.

“We continue to see a strong demand,” Tebo said.

Boulder usually attracts long-term real estate investors, Callan Gamble said.

“We have seen when the economy dips, Boulder doesn’t dip as much as Colorado, and Colorado doesn’t dip as much as the rest of the country. For companies from the coasts we are still affordable,” she said.

Scott Littlefield, moved to Boulder from California in 2015, and a year later bought the building that housed The Walrus Saloon at 1911 11th Street for $6.9 million. It’s a safe investment, said Littlefield, who has a doctorate in political science from Cambridge University, and three master’s from Stanford University, including one in business administration.

The limited opportunity to build in Boulder makes the real estate market relatively more stable than other places, he said. The University of Colorado Boulder and the government labs are sources of steady employment in the community, which also has an innovative ecosystem populated by skilled workers, Littlefield said. It helps make downtown Boulder less vulnerable to economic upheavals, he said. Boulder’s proximity to a major metro area and a major international airport also convinced him invest in the downtown building built in 1916.

He remodeled the space, and managed to lease most of its 23,000 square feet as office space. A restaurant/tavern space of 6,267 square feet and a retail spot measuring 1,200 square feet are still available for potential tenants.

Rents, vacancy rates

The average base lease rate for Littlefield’s building is close to $40 per square foot, said Todd Walsh, a commercial real estate broker and managing director at Market Real Estate, which is working with Littlefield to help lease the building.

Boulder’s commercial real estate base rents have been stable, though property taxes have increased considerably, bumping up gross rents for tenants who have to pay taxes, insurance and common area maintenance charges, Walsh said.

“I have clients whose taxes increased by 25% to 50% this last cycle. All of those costs are passed directly through to tenants,” he said.

“Commercial real estate is a lagging indicator of the economy,” Walsh said. It won’t point to where the economy is going, but where it has been, he said, adding “If I had a perfect crystal ball that would tell me the commercial real estate market either is already in or may have already entered a slow down given vacancies across office/industrial/retail are at close to all-time lows and rents seem to have reached a ceiling over the past few years.”

Rents for commercial real estate in Boulder vary depending on the location, and the age of the building, Dean Callan & Co.’s Callan Gamble said.  Space in new buildings tends to command high rents. Average office rents in Boulder range from $18 to $26 a square foot in base rent, she said. Downtown Boulder rents are higher, and can range from $29 to $45 a square foot in base rent.

Average retail rent in the city is about $27 a square foot in base rent, she said. In downtown it ranges from $25 to $45 a square foot in base rent.

Jared Leabch, a commercial broker and associate director of Newmark Knight Frank in Denver, thinks office rents in Boulder are beginning to see an uptick, particularly in downtown and east Boulder. Companies that have organically grown locally, or are big in size tend to stay in Boulder, he said. It’s easier to recruit and retain talent in Boulder, his clients have told him. Older commercial properties are being remodeled to reflect contemporary design standards and interior finishes, he said. Employees like to work in a fun, vibrant environment, Leabch said.

The current vacancy rate for office space in Boulder is 6.24%, Walsh of Market Real Estate said, citing data from CoStar, a commercial real estate information company. Over the last 10 years, the average office vacancy rate in Boulder was 6.85%, he said. In this period, the lowest rate recorded was 4.03% (in first quarter 2015) and the highest recorded was 10.38% (in third quarter 2009).

For the retail sector, the current vacancy rate in Boulder is 6.75%, slightly above the 5.39% average rate over the last 10 years, he said. The lowest vacancy rate in that period was 2.13% in the second quarter of 2016 and the highest was 9.22% in the first quarter of 2010.

The industrial real estate market is currently the strongest performer with a vacancy rate of only 3.73%, Walsh said. The 10-year average (2009 to 2019) vacancy rate is 4.32% in this sector. The lowest vacancy rate in industrial space was 1.68% in the second quarter of 2017 and the highest was 10.95% in the third quarter of 2009.

Not much new industrial space is being developed locally. A lot of industrial real estate is coming up in other parts of Boulder County, Walsh said, adding the Colorado Technology Center in Louisville is one such example. The Tech Center is at 80% build-out with more than 18 million square feet of developed and developable land, according to Chuck Reid, assistant manager of the Tech Center’s owners’ association.

Office and retail markets are more dynamic in Boulder, Walsh said. In Flatiron Park a lot of industrial/warehouse/flex space has been converted into office and retail spots, he said.

Growth in Boulder’s commercial real estate is related to growth in the local residential real estate market, Walsh said. The availability of high-paying jobs in Boulder, particularly in technology, engineering, pharmaceuticals, health care and other innovation sectors is keeping the housing market strong.

Venture capital investment in Boulder in second quarter 2019 was $215 million, compared to $412.7 million in Colorado in the same period, according Boulder Economic Council data.

Of all commercial properties in Boulder, the share of industrial is significantly larger than retail and office space, said Clif Harald, executive director of the Boulder Economic Council. Industrial space may not be limited to manufacturing, it could be a combination of office and warehousing as well, he said. Trends in construction of new industrial space and absorption are uneven, he said.

Almost all manufacturing/industrial companies use their commercially zoned space for manufacturing and office purposes, he said.  Often they don’t share details for proprietary reasons, he said.

It is hard to generalize how companies look at their real estate costs, he said, adding for most businesses, real estate costs are a lower part of their total cost structure.


Boulder’s data on new non-residential square footage since 2014

(Based on building and demolition permits and divided into categories such as industrial, lodging, medical, office, public and institutional, and commercial/warehousing )

Industrial real estate added 54,033 square feet in 2014; 23,534 square feet in 2015; 34,886 square feet in 2016; 3,510 square feet in 2017, and lost 15,000 square feet to demolition in 2018.

Commercial/warehousing space increased by 325,081 square feet in 2014; and lost 36,216 square feet to demolition in 2015. It added 56,701 square feet in 2016; 52,692 square feet in 2017 and 112,392 square feet in 2018.

The office category added 113,804 square feet in 2014; 75,569 square feet in 2015; 233,614 square feet in 2016; 51,189 square feet in 2017 and lost 22,674 square feet to demolition in 2018.

Source : Boulder Planning & Development Services 

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