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Page 6 — Office Properties Quarterly — December 2016
P eople joke that driving High-
way 36 can make one feel as
though he is entering a “bub-
ble.”This bubble encapsulates
the city of Boulder and brings
to mind the old saying regarding
Niwot’s Curse, which speculates that
once someone has entered Boulder, he
will be enticed by the natural beauty
and will never want to leave. The truth
is, Boulder has, in essence, created a
mini Manhattan – a city surrounded
by open space rather than water. Boul-
der is an island of land with no abil-
ity to sprawl outward and, due to the
city-imposed height restrictions, can’t
expand upward.
With these conditions, Boulder has
its own unique submarket, isolated in
its bubble from the rest of the Denver
metro market. Similar to the Denver
market as a whole, over the last few
years office vacancy has decreased to
an all-time, single-digit low.
Due to the lack of supply, office rates
also climbed to an all-time high. East
Boulder office parks, located outside of
central business districts, were sign-
ing leases in the $12- to $15-triple-net
range a few years ago. Today, they are
upward of $20 triple net. In the central
business district and downtown, office
rates were around $18 triple net. Today
they generally average $28 to $32 triple
net and have gone as high as $40 triple
net in a few rare instances. Also worth
mentioning, the average triple-net
range in downtown Boulder is $15 to
$16, bringing the all-in equivalent to
$43 to $48 full-service gross. This mar-
ket trend seems to support that the
Boulder bubble of Niwot’s Curse could
be true.
Bullish Boulder developers started
planning for new
office product just
out of the recession
in 2010, which was
well before the cur-
rent low vacancy/
high rental rate
atmosphere. Devel-
opers delivered four
additional office/
retail buildings
to the downtown
market, which was
orchestrated with
perfect timing.
These buildings – PearlWest on 11th
and Pearl streets, TheWencel Building
on 13th andWalnut streets, 909Wal-
nut and 1738 Pearl – totaling approxi-
mately 300,000 additional square feet,
currently are a majority leased.
All this begs the question, will the
Boulder bubble eventually pop, and
can Boulder maintain this strong mar-
ket with $50 all-in for office space?
One must wonder, can Boulder keep
absorbing additional office square
footage?
With the change in the atmosphere
and the strength of the Boulder mar-
ket, we have seen many large com-
panies occupying chunks of space in
downtown boulder head elsewhere.
To name a few, Bing, New Hope Media
and Intermundo Media are moving
east or completely out of Boulder for
lower prices and easier accessibility for
their workforces.
With the success of the earlier office
projects and the high asking rental
rates, developers have been flocking
to Boulder to get in on the action. Cur-
rently there are about a dozen projects
under construction or in the planning
stages for an additional 1 million sf.
In studying current market condi-
tions downtown, CoStar shows a con-
tinuing strong office market with an
8 percent vacancy rate – a 4 percent
vacancy increase over the past year.
What CoStar doesn’t show in its
vacancy analyses is sublease space
due to it being “still occupied” or
“rent producing” space on the mar-
ket. There is about 120,000 additional
sf of office space being marketed as
sublease space in downtown Boulder.
This is another 5 or 6 percent of avail-
able office space. A 12 percent market
vacancy tells a different story.
Although the office market contin-
ues to feel strong, there is a softening.
If this vacancy level is maintained or
increases, the likelihood is that the $28
to $32 triple-net asking rate will adjust
downward somewhere between $5
and $7 per sf to entice those compa-
nies moving east to come back to the
downtown business district.
The new product in other parts of
town is underwriting the lower end
of the downtown rates to make their
construction numbers work. If down-
town office prices decrease, will people
choose to be in a new product in other
areas of town for equal rent or will
they move back downtown and will
the 1-million-plus sf all be built?
Ultimately, Boulder is still a bubble;
it is a mini Manhattan. Approximately
one-third of the new 1 million sf
of product is already spoken for by
Google. Other companies, large and
small, continue to seek out Boulder as
a fun and “affordable” option for the
same reasons as Google. If this contin-
ues to happen, this unique submarket
will continue to flabbergast investors
unfamiliar with this strong and bullish
market, and companies will continue
to pay $50 full-service gross for prime
downtown office space. Boulder likely
will become the SiliconValley of the
mountain region.s
Angela Topel
Senior broker
associate, Gibbons
White Inc., Boulder
Market Update
CoStar
Downtown Boulder office vacancy rates for the past year.
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