By Scott Crabtree

It’s tough to say the office market has turned around, even for eternal optimists, as we are. Still, considering all the news and current vacancy rates, downsizing, work-from- home (WFH) pushback, etc., we have seen more activity and leasing in the Boulder market in the last few quarters than in the previous few years.

The Crabtree Team completed six office leases in the last 4-5 months, which is far from the office transactions we did pre-pandemic, but certainly is a better pace than we were experiencing over the previous few years. Additionally, the number of inquiries, tours, and tenants we track for the Boulder office has significantly increased.

Trends of New Leases

We have seen a flight towards quality, and landlords have been rewarded by spending money on building out Class-A office space, adding amenities, and having a willingness to work with tenants on deal structures. To be honest (which we pride our business on), the deals are shorter term, 2-3 years on average as compared to 5-10 years pre- pandemic. The majority of tenants are downsizing space (50k SF to 10k, 20k SF to 7k, 10k SF to 3k, etc.), but leases are getting signed and companies desire to have office space. Despite this trend of downsizing space, we have even seen some tenants expanding office square footage or planning to do so in the near term.

Deal structures have been all over the map depending on landlords’ goals and commitment to minimize vacancy. Institutional landlords who are willing to spend money on buildouts, turnkey spaces, and provide ample free rent are experiencing less downtime. We’ve continued to recommend such incentives, as no tenant wants to wade through the current city permitting process, which recently has been like wading through drying cement. Still, landlords are holding base rents at pre-pandemic levels – $35-$40 NNN in the downtown market for Class-A spaces – in return for these investments. Local and other landlords with more flexibility who are less NOI (Net Operating Income) driven can provide a blend of lower base lease rates and free rent to make the net effective rent for tenants more obtainable to move and/or sign a new lease. Either way, most landlords are bullish on the Boulder market and don’t want to lock in lower base rates for longer than 2–3-year terms. After all, it is Boulder, and the sentiment is that Boulder’s office market is well positioned to return to normalcy quicker than other office markets nationally – this is a safe bet, in my opinion!

Current Vacancy Rate Estimates

City of Boulder: 42% vacancy
5.8% are subleases

Downtown Boulder: 29% Vacancy
2% Subleases

East Boulder: 22% Vacancy

Central Boulder (2.1M total SF): 12% vacancy

*Potential to increase to 29% in the near term with a lot of larger floor plans

Caveats:

• One of Boulder’s largest tech tenants is giving back 140k SF of office space and renegotiating on another 150k.
• Twitter space of 65k is coming back to market.

As summer ends and more employers commit to office policies to get employees back in the office, we will continue to see an increase in tours and leasing activity post-Labor Day and into Q1/Q2 2024.