WILD WILD WEST!
Six shooters, blazing trails, and forming new frontiers are all signs of the current state of the commercial real estate market. According to Wikipedia, “The Wild West laid a foundation for its ensuing mythology. It was an era of cowboys, Indians, pioneers, outlaws, and gunslingers brought together by the purposes of expansion, defense, greed, and reinvention.” Wait, are we back in the days of the 1860s? The answer is both yes and no. Let’s examine some similarities. Boulder commercial real estate has definitely seen a reinvention. The reinvention has come in the form of a robust and seemingly unstoppable sales market, despite disturbances in the market. Buyers are acquiring properties at a record pace and price. Inflation, barriers to entry, and the cost of building are factors in the buyer’s decision-making process. Buyers are repurposing older properties to meet the needs of both investors and end users. As an example, there have been multiple buildings occupied by industrial or automotive users that are being demolished and rebuilt. Typically, these developments are residential. While borrowing costs have more than doubled since the heyday of low-interest rates, buyers have a strong appetite for Boulder County properties. The sales market is showing some signs of cooling as the sales cycle is taking longer, and higher interest rates are reducing the number of buyers.
However, not all is rosy on the western front. Office vacancies continue to increase, with landlords having to make more concessions to attract tenants. According to CoStar, the vacancy rate for Boulder office spaces in the range of 5,000 to 30,000 square feet is 28.4%. There are 91 spaces for lease in this size range. The result of a hybrid work environment has caused several companies to downsize their space when leases come due. Companies are “rightsizing” as their space needs have changed. Most recently, the industrial lease market has cooled as well. Comparatively, there are only 19 industrial spaces for lease in the size range of 5,000 to 30,00 square feet.
The general consensus in the brokerage community is that 2023 will be a challenging year. Until office vacancies decline, there will not be rent growth. The fed funds forecast will definitely impact the commercial real estate market. Hopefully, 2023 will turn out better than expected.