As the pandemic winds down and interest rates remain high, the Colorado real estate market is still in flux.
At the forefront of that dynamic is Heather Boelens, the managing officer partner at Bryan Cave Leighton Paisner’s Boulder office. Boelens works in multiple areas of the real estate industry nationally and in Colorado including commercial and multifamily properties.
Boelens said for commercial real estate, she saw a slow down during the summer of 2022, noting a dip in transactional volume. She attributed that to the uncertainty of interest rates.
“I think it’s created quite a bit of anxiety just in the real estate world, generally speaking, and it’s caused a lot of real estate private equity funds … and just investors who typically liked real estate as an asset class to kind of take a step back and maybe hold onto their money a little bit to see where this is going,” Boelens said.
Recently, however, Boelens has seen an uptick with three new acquisition deals including two in Denver with the other out of state.
Office space is another issue that has been continuously cropping up. According to Avison Young’s, a commercial real estate company, first 2023 quarter report for Denver, subleasing availability grew by nearly 10% since the last quarter. The industries giving back the most space were tech, media/telecom and healthcare organizations. Direct vacancies were also at nearly 18% the first quarter, which is close to double the rate in the first quarter of 2016.
Boelens works with tenants and landlords and she’s noticed the lease negotiation process flipping around due to COVID — much of her lease work is in Colorado.
“We were in a world where landlords could kind of charge whatever they wanted and just give a tenant a lease form and say ‘you’re just going to sign this and it is what is,’” Boelens said. “It’s been so interesting to see what’s happened now since COVID where the vacancy rates are so high that landlords are really bending over backwards just to get some tenants in their space and I’m sure that we’re going to see a lot of distress situations coming up. … Our New York office, in particular, has seen a lot; Colorado’s seen some.”
Boelens added there could be a trend toward clients negotiating to terminate a lease early. To help curb the trend of empty office space, Boelens said she is seeing more landlords offering rent abatement and improvement allowances that lead to floor plans meant to attract a younger generation with things like game rooms or collaboration areas.
Boelens added there’s a possibility of a growth in office space in the suburbs, as people move to places with more space. Her expectation wouldn’t be for skyscrapers, but smaller office spaces.
Housing
Boelens noted private equity funds are still interested in multi-family housing.
“I don’t see that asset class really changing much other than just continuing to go up and up,” Boelens added. Particularly in Colorado, Boelens noticed investors have been coming in from out of state after recognizing housing shortages with an interest in multi-family housing.
In March, the Colorado General Assembly introduced a bill that aims to address housing needs across the state. The bill passed out of the Senate April 28 and was introduced in the House of Representatives that day.
According to the National Low Income Housing Coalition report from 2023, Colorado has a deficit of nearly 125,000 affordable and available units, making it one of the 10 worst states in the nation.
According to the Colorado Association of Realtors’ March 2023 statewide report for the single-family market, the median sale price of residential property in Colorado was $551,000, which is down about $25,000 from last year at this time. New listings had also dropped by nearly 20% from 2022.
The Colorado Business Economic Outlook from the University of Colorado Leeds School of Business expected 22,000 multifamily units to be permitted in 2023, which would be a 20% decrease from 2022.
“Although this appears to be a steep drop, multifamily construction will still be stronger than any year from 1980 through 2020,” the report noted.