Colorado Boulevard Submarket Highlights
By: Community First Commercial Real Estate
7 major buildings in the Colorado Boulevard Submarket have changed hands over the last 3 years, driving investment activity. Investment groups have, and are, injecting significant capital into dated assets in an effort to reposition them. This activity has pushed rental rates up aggressively from 2015 through the end of 2017.
Since the beginning of 2018, according to CoStar Analytics, the Colorado Blvd Submarket has seen a slight decrease in Gross Asking Rate Per SF, even though vacancy has continued to decrease.
The major delivery of new product was Colorado Center Tower III, which has been substantially leased, primarily by Cigna, further dropping the Vacancy Rate. However, Tower III is an outlier in the market being the only substantial new delivery in the submarket, so we anticipate a further escalation in Gross Asking Rent Per SF as product remains limited and owners continue to invest in dated Class B buildings.
CoStar Analytics forecasts a continued reduction in Vacancy Rate through 2020, putting upward pressure on rents. Additionally, many of the assets that traded over the last 3 years, are currently being repositioned to sell/exit in the near future, one of them being currently on the market for the second time in the last 2 years.
We recommend that companies evaluate their lease obligation to determine where they are at on the Gross Asking Rent Per SF curve. There is potential to strike an early renewal and/or lease restructure, save money, and improve your space during this slight dip of the submarket, depending on long term goals.
Exploring the Market
Many Tenants negotiate their own lease renewals and are usually able to obtain some concessions from their Landlords; however, in an ascending market, this can be difficult to achieve. Without the assistance of a commercial real estate advisor, Tenants usually do not fully understand the value their leases add to the building (especially when a building is being positioned to sell).
What’s at Stake
Tenants must realize that lease renewal/restructure negotiations are not basic administrative issues, rather, an opportunity to save money and strengthen competitive positions. What’s more, Tenants must be prepared to face lengthy negotiations, and go through all of the iterations of a move. The work at hand is to be performed by a commercial real estate advisor, while Tenant’s remain focused on business operations.
How to Win
Tenants should enter negotiations with clear objectives. Face rate reduction, immediate rent relief through free rent, rightsizing, fully understanding Tenant Improvement needs for updating the space or improving operational efficiency, signage or lobby identity, and other factors should be outlined from the beginning. If Tenants don’t know their objectives, how can they know they have achieved them? Landlords are not all created equal. It is important to understand that Landlords are real estate professionals who negotiate leases for a living. Each Landlord has different motivations. Is the Landlord a REIT, pension fund, or entrepreneurial investor? Long-term holder of assets, or value-add and exit? This all affects how we approach Landlords for concessions.
Tenants should understand the market. This means knowing where deals are getting done in comparable buildings and taking into account effective rates, through a combination of free rent in conjunction with face rates. Plus, what are the concessions achieved by other similar Tenants? Such as free parking, Tenant Improvement allowances (or application of unused allowances to free rent or FF&E), furniture monies, moving expense rebates, signage, renewal and expansion rights.
How We Can Help
Community First Commercial Real Estate helps clients plan, and execute, successful renewal/restructuring strategies. As an educated third-party service provider, we understand Landlord motivations, economic factors, market forces, and Landlord vulnerabilities. This knowledge, in conjunction with a thorough awareness of client business and occupancy objectives, ensures the Tenant reaps the full benefit of its tenancy, resulting in reduced fixed occupancy costs, and a competitive advantage.
Recent Colorado Boulevard Successful Transactions: