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Colorado Office Space Update: Boulder and Colorado Springs Experience Recovery

Forbes Magazine and CNBC both recently ranked Colorado as 5th in the nation for business. The state was also recognized by Forbes as number one for educated labor supply and as third-best city for future employment in oil and gas by CNBC. The Denver market has seen the most growth in the office market, but the Boulder and Colorado Springs office markets have also experienced growth and recovery, which is predicted to increase in the next year and beyond.

Boulder

While Boulder is not seeing the same impressive increases as Denver’s office market, there has been consistent growth in the area as expanding companies elect to build and lease space within city limits rather than along the U.S. Highway 36 corridor. According to CoStar, Boulder’s Class A vacancy rate for the 4th quarter of 2012 was 2.2 percent with corresponding lease rate of $25.45 psfg. The 1st quarter of 2013 saw the Class A vacancy rate drop to 2 percent while the lease rate increased to $27.98 psfg. Vacancy rates in Downtown Boulder are even lower than the city’s market average, resulting in rental rates ranging from $30 to $35 psfg, not including costs for parking. As the low availability of space in the downtown area increases rent, it is expected that investors and tenants will look to more affordable office spaces in the central and east Boulder submarkets.

Colorado Springs

As was seen in the Denver market, the office market in Colorado Springs has recently experienced lower vacancy rates and an increase in absorption. However, unlike Denver, the lease rates have decreased slightly. This is typical of historical trends which reveal that the Springs is generally about eight to 10 months behind Denver’s economic ups and downs. Despite the dip in rent prices, the overall strength of the market remains good and tenants have shown a willingness to pay more for higher-quality office space.

According to CoStar, at the end of the 2nd quarter of 2013, the total available square footage of Class A office space in the Springs was 5,488,746, 10.2 percent of which is currently vacant. This is down from the 1st quarter rate of 12.4 percent and the 2012 year-end rate of 13.2%. The average lease rate has increased slightly since the beginning of 2013, from $21.47 psfg to $$21.56 psfg, but is still down from the 2012 year-end rate of $21.81.

Local economists predict that the Springs office market will continue on the road to full recovery as more new businesses choose to relocate to the area in addition to the lateral movements of local businesses which have been the main impetus behind recovery so far. It is expected that the majority of businesses will rent space for primary offices in the north Colorado Springs while the downtown will see more secondary or “satellite” offices. The forecasts estimate that rents will slowly increase as vacancies continue to drop. This is anticipated to be especially true of higher-quality, well-located office properties which are the most in-demand by potential tenants.

This blog was written by Bob Amter, President of Montegra Capital Resources, LTD., a Colorado hard money lender.   has been in the private capital lending business for 41 consecutive years.