Posted by on July 24, 2019

BOULDER — The foundation of the Boulder Valley real estate market remains stable in the face of headwinds such as rising construction costs and pesky regulations.

“Overall, the commercial market in Boulder and Boulder County is very tight for all sectors,” Dean Callan & Co. CEO Becky Gamble said Tuesday during BizWest’s Real Estate and Construction CEO Roundtable, which brought local leaders together to discuss industry trends.

Despite the faint specter of a potential downturn in the economy on the horizon, low vacancy rates and rock-bottom interest rates are keeping the real estate market chugging along, Tebo Properties founder and owner Stephen Tebo said. “There’s little indication of a slowdown right now.”

While the overall mood among real estate executives was fairly optimistic during Tuesday’s roundtable, there are some nagging concerns swirling around the real estate and construction industries.

Chief among those concerns are rising costs, including the price of land, costly regulations and permitting fees, and the increasing expense of tenant improvements.

These factors are often intertwined and can compound one another.

“There are few very large blocks of space available, and there aren’t [many large-scale commercial developments] under construction or in planning,” Gamble said.

Regulatory red tape is partially to blame, and “developers get bogged with city minutia,” she said.

Because there are so few large office spaces available, Vista Commercial commercial broker Chris Jensen said companies often renovate flex and industrial spaces into office space.

Element Properties principal Scott Holton said Boulder’s regulatory environment presents a unique conundrum. Companies are interested in coming to Boulder because of its high quality of life, but regulations aimed at preserving that quality of life can make the area too expensive.

“There are well-intended goals,” but land-use codes are often overly complicated and cumbersome, Coburn Development director of development John Koval said. “It can become really frustrating.” The lack of quality construction services is also frustrating for developers.

“The [construction] subtractor pool is spread so thin,” Koval said.

Allen Ginsborg, managing director and principal at NewmarkMerrill Mountain States, agreed. He added: “The single biggest regulator on growth in this economy in Colorado is construction costs.”

Because of the intense demand and the lack of availability, “we are seeing newer, nicer properties set new high bars” in terms of rental and sales prices, SVN/Denver Commercial LLC managing director Steve Kawulok said.

A seemingly inexhaustible appetite for new office space from tech giants such as Google is pushing demand even higher, crowding out smaller firms.

“We’re not chasing 5,000-square-foot tenants,” Holton said. “We’re whale hunting for Fortune 50 companies.”

Price increases in Boulder, particularly near downtown, are pushing some commercial tenants to areas in eastern Boulder County.

“We’re seeing a lot of original Boulder tenants vacating” and moving toward Louisville and Lafayette, Jessica Cashmore, a principal and broker associate with The Colorado Group, said.

The large, long-languishing Phillips 66 property in Lafayette represents an intriguing piece of the eastern Boulder County real estate puzzle, especially because the nearby Colorado Technology Center in Louisville is nearly built out.

In addition to rising costs, issues such as traffic and housing affordability for employees are forcing companies to look for office space outside of Boulder city limits, Keith Burden, president and principal of Burden Inc., said. “We are seeing a lot of tenants leaving Boulder for locations in Niwot”

Companies have even begun to search for real estate opportunities outside of Boulder and Broomfield counties.

“We’ve had a lot of inquiries about southwest Weld County” due to its proximity to Interstate 25, Boulder, Denver and the Denver International Airport, Kawulok said. “I think we are going to see a lot more commercial [activity] out there.”

Residential builders are also looking at farther-flung areas for development opportunities.

“Boulder from a residential standpoint is typically beyond what we are comfortable with because of the land price and regulatory overlay,” Boulder Creek Neighborhoods partner Steve Erickson said.

Competition from coworking firms such as WeWork is getting more fierce in the Boulder Valley market. That’s particularly the case for landlords who work with smaller tenants, Burden said.

Coworking spaces often offer more-flexible terms and shorter leases than traditional commercial landlords. For smaller startups, being nimble is a prerequisite for success.

“Three years is a lifetime for a startup,” which are generally much more comfortable signing single-year or month-to-month leases on office space, CBRE vice president Erik Abrahamson said.

Regardless of the challenges related to the perceived expense of local real estate, everything is relative. Boulder can often feel like a bargain for commercial tenants relocating from the coasts, and particularly from Silicon Valley,

“There’s still a lot of cash coming in and people still really believe in Boulder,” Koval said.

By Lucas High —