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Page 6 — Office Properties Quarterly — June 2017
Market Update
Inspired Office Space
Experts in Design Mixology
Tenant Planning Services
1660 Lincoln St, Ste100, Denver, CO 80264
303.861.4800 l
A s businesses in Boulder
expand and the Lower
Downtown, Platte Valley
and River North districts in
Denver continue to flourish,
the U.S. Highway 36 corridor – the
artery between the two bookends
– continues to attract a growing
demand for available office space.
As a result, office development along
the corridor can barely keep pace with
companies searching for a location that
allows for affordable quality product as
well as the ability to tap multiple labor
pools.The cost to lease a new Class
A office building in the Interlocken/
Outerlocken area can be upward of
30 percent less expensive than new
construction in Boulder and in the hip
areas in downtown Denver. And while
projects located on the bookends pro-
vide a popular setting, in a “gritty cool”
environment that appeals to many mil-
lennials, they lack the easy access and
efficiencies that office buildings along
the corridor provide.
See as evidence the successful
lease up of office buildings recently
completed or under construction at
Arista (located along the corridor at the
Regional Transportation District’s tran-
sit station in Broomfield). For example,
8181 Arista Place, an approximately
90,000-square-foot office building that
was built on spec and completed in
third-quarter 2016, is already 94 percent
leased.This mixed-use building has
only two retail restaurant spaces still
available. Its sister building, 8001 Arista
Place, is 90 percent leased, and a third
office building, 8383 Arista Place, soon
will change phase from concept to full
design.
Given its central
location, the 36 corri-
dor is capturing both
Boulder and Denver
tenants, and the
pace has been accel-
erating over the past
18 months. In order
to accommodate the
excess demand, over
250,000 sf of new
speculative office
space is under con-
struction. Needless
to say, developers
are bullish on the
corridor’s office market and its eco-
nomic sustainability.
Not too long ago, it was a significant
challenge to attract growing Boulder
companies to sites south of Interlock-
en. Corporate heads wanted the image
and attraction associated with Inter-
locken’s campus setting, but typically
were hesitant to consider options any
further south – and thus further from
Boulder County – than theWadsworth
exit.Today, similar companies are
growing more familiar with the quality
development being built along the cor-
ridor, south of Interlocken and closer to
Denver’s central business district.
With millennials taking over the
workforce, recruitment is the No. 1
driver behind real estate decisions.
This has pulled the epicenter of activ-
ity on the corridor closer to Denver, as
increased multifamily density and an
increased millennial population has
created a primary recruitment pool on
the north end of downtown Denver.
In response, the city ofWestminster
is planning to redevelop what was once
theWestminster
Mall into the city’s
future downtown.
The need to focus
on recruitment isn’t
going to pass any
time soon, given
the metro’s growing
population, consis-
tent in-migration
and working age
cohort.
According to our
research, metro
Denver boasts the
nation’s fourth-highest share of edu-
cated millennials and more than one
in five of all area residents are aged 20
to 34. Of Denver’s 2.8 million people,
more than three in every five people
fall within the working age population.
Perhaps most indicative of our area’s
magnetism is the sheer number of
people migrating here.The most recent
data shows that some 107 new resi-
dents moved into Denver every day for
the past three years.
In addition to speculative develop-
ment, the U.S. 36 corridor is home to
a significant number of build-to-suit
projects.
Any tenant looking for more than
50,000 sf has an extremely limited
number of options.With construction
costs placing build-to-suit opportuni-
ties on par with current rental rates for
existing Class A properties on the cor-
ridor, companies are opting for custom
builds.
Some of the notable companies that
have made the decision to take the
build-to-suit route includeThe Partners
Group, a real estate firm that is build-
ing an 80,000-sf office building, with
the ability to add another 125,000 sf to
accommodate future growth; Viega, a
German plumbing equipment manu-
facturer, which is planning a 180,000-sf
office building; and Swisslog, a manu-
facturer of tubing-transport products
for the health care industry, which is
planning a 60,000-sf facility.
With the aforementioned increase
in activity and current lack of sup-
ply, coupled with rising rates at each
bookend, rental rates at existing office
buildings along the corridor have been
steadily increasing and are expected to
continue increasing for the foreseeable
future.
Tenants (particularly large tenants)
see the writing on the wall and are
choosing to extend their existing leases
early and often for longer terms. By
doing so, they likely are avoiding the
sticker shock that comes with even
higher rates that are on the distant
horizon. Savvy users see how tight the
market has grown compared to histori-
cal norms.
Our research shows the submarket’s
vacancy rate at or below 14 percent for
the last eight consecutive quarters; you
have to go back more than 15 years
for anything remotely comparable in
terms of vacant space on the market.
All in all, the U.S. 36 corridor is no
longer simply a drive-by zone for
those doing business in Boulder or
downtown Denver. Rather, it has
become a “landing zone” for com-
panies that have found locations to
flourish and grow, while avoiding
the steep costs associated with hav-
ing an office address in one of the
two anchor cities. s
Don Misner
Vice president,
Jones Lang LaSalle,
Denver
Joe Heath
Vice president,
Jones Lang LaSalle,
Denver