Onward and Upward?

The Boulder and Broomfield County commercial real estate market in 2017 was smoking hot! Lease rates increased, record sales prices were achieved and the supply continued to remain stretched. The commercial real estate market is on a long term record run that was predicted to end two years ago. Will the successful run continue in 2018?

There are several reasons that the commercial real estate market will continue down the path of success. First, the supply continues to be constrained while demand is keeping up. Developers are having a difficult time finding available land in the county of Boulder to purchase. If they are able to find a suitable piece of land, the city of Boulder and surrounding cities have further implemented their slow growth policies with additional fees and regulations. The timing to get governmental approvals is very long as a result of the abundance of applications and the cities’ desire to slow growth. These factors have contributed to the increased cost to build new buildings. The result is that existing building continue to escalate in price.

The second factor that will help propel the market is the continued demand of people and companies wanting to locate along the front range. The population gain in Boulder County from 2010 to 2015 was approximately 10%. While this is slowing somewhat, the continued increase in people is causing demand for both residential and commercial real estate.

On the other side of the teeter totter, there are some factors that could “slow down the  train .” We are starting to see an increase in interest rates. As rates go higher, buyers in the market will not be able to pay as much as they have in the past.  Another major force that is a hard reality is the increased cost of construction and tenant finishes. The standard office finish is $50-$60 square foot and medical finish can be in excess of $125 square foot. Contractors are backed up causing jobs to be elongated. With the increase in costs, landlords are forced to pass these along to tenants via a higher lease rate or having the tenant pay out of pocket. We have seen several tenants renew their lease instead of considering other locations for these reasons.

Boulder and Broomfield counties are fortunate to be desirable locations to live and work. With employment in business and professional services still driving growth, demand for office space will remain strong. We will see later this year if Amazon agrees. Regardless, I predict that 2018 will continue to remain a strong commercial real estate market with rent growth, increasing sales prices, and robust activity.

Prepared by Jason P. Kruse, CCIM

DISCLAIMER: The information contained herein is from the following sources, BizWest, CoStar, and The Colorado Group. Jason Kruse does not represent that he was involved in all of these transactions and they serve only as market information.

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