CREJ - Office Properties Quarterly - September 2016
To share observations about the current real estate and business climate in Boulder always is an interesting subject matter, especially right now and especially on paper. To get things rolling, following are just some noteworthy facts to explain why Boulder’s market continues to be hot, and why the lifestyle is still a driving force behind the market. • The Best Cities for Entrepreneurs (No. 1) – Livability, July 2016 • The Best Cities for New College Grads (No. 7) – Zumper, May 2016 • The Most Walkable Cities in Colorado (No. 2) – Walkscore, May 2016 • The Best Places to Live in Colorado – Livability, May 2016 • The Best Green Cities for Families (No. 6) – SmartAssest, April 2016 • The Best Places for STEM College Graduates (No. 3) – NerdWallet, April 2016 • Most Educated Metro Areas in the Nation (No. 2) – ValuePengin, March 2016 • The Best Communities for Physical Well-Being (No. 1) – GallupHealthways Well-Being Index, February 2016 • The 10 Most Active Cities in U.S. (No. 1) – trulia, February 2016 • The 10 Fastest Growing Startup Business Cities in U.S. (No. 5) – Mattermark, January 2016 • America’s Best City for Tech Start Ups (Bloomberg Business Week) • 10 Best Cities for the Next Decade (Kiplinger) • The Healthiest Cities in America (No. 1) – Niche, August 2016 Given the accolades above, it is easy to explain the rationale for all the new projects recently completed, under construction and in the pipeline. Perhaps the most notable of the completed projects is Pearl West, the 160,000-square foot office and retail building in downtown Boulder. Not only did this building set the new high for office lease rates – mid-$40s triple net – but also set highs for retail with a few deals reported over $75 triple net. The project was nearly 100 percent preleased by completion time. Also recently completed downtown is the 55,000-sf Wencel Building. Predominately an office building, this building achieved strong preleasing rates in the mid-$30s triple net and currently is 55 percent leased as tenants start moving in this month. Moving east, you’ll find more newly completed office buildings, including 4740 Pearl, which is 61,000 sf and was 100 percent preleased prior to completion, and 5541 Central, a 25,000-sf warehouse converted to office and preleased. Both buildings achieved strong lease rates for this easterly Boulder location. Highlights of some of the under construction projects – I’m not going to mention the 300,000-sf Google Campus – that have anticipated delivery dates ranging from 2017 to 2018 include The Boulder Commons and 5541 Central. The Boulder Commons is a 100,000-sf building located in the new S’Park Development that is quoting lease rates between $22 and $25 triple net with no signed deals announced yet. Meanwhile, 5541 Central is under construction with a 36,000-sf office building that was preleased, again with very strong lease rates for this submarket. And finally, sitting in the pipeline are several projects, including the next big mixed-used development at 30th and Pearl, The Reve. This will feature 240 residential units, 100,000 sf of office and 25,000 sf of retail. The project was approved by the city and developers are waiting on final permitting. Just across the street to the north is another 100,000-sf office building planned by Element, as part of the S’Park project. More central at 28th and Canyon, complementing the two hotels under construction, is a 40,000-sf Class A office building. Specific timing for all these projects has not been released yet. Finishing out 2016, all signs are pointing to a continued strong market with exciting new projects in the ground or waiting patiently for that elusive building permit to get going. While I did not have room to mention all of the projects, it is easy to drive the city and see the cranes hovering – always a good indicator of the economy. However, a few words of caution as we go back to school and think about waxing the skis. First is the city’s attitude with new development. Developing in Boulder is never easy, and now the City Council is pondering tripling the current development tax fee in order to help pave the way for more affordable housing. There is no question the majority of us Boulderites recognize the need for more affordable housing, but I’m not sure the commercial developers need to solely carry that monetary burden. Council would be best served to work on the transportation issues to keep all our great Boulder companies in a position to grow and thrive right here in our backyard. The other noteworthy item is subleases. Currently there is over 250,000 sf of sublease space on the market. Subleases have the potential to soften the market, at least in the short term. I would expect to see some tenants taking advantage of the sublease space, especially downtown, as an opportunity to get into the downtown area at below-market lease rates. Conversely, I expect some landlords might be willing to move off from their current quoted lease rates in order to compete with the subleases, especially for shorter-term deals in the one- to three-year range. No real surprises as this market continues to perform well with low vacancy, strong lease rates and record sales price figures per sf, not to mention the ability to ski the best mountains in the world less than two hours away or bike up Flagstaff for a quick lunch break. Work hard, play hard. Boulder has that figured out. Let’s hope we can sustain the fun.