Real estate market defined by high interest rates, stubbornly vacant offices

Lucas High

While inflation has been tempered somewhat in recent months, interest rates are unlikely to plummet back to pre-2022 levels in the near future, a phenomenon that could see residential real estate activity — both deals and development activity — remain fairly subdued in certain Boulder Valley and Northern Colorado markets.

“In 2023, construction activity is forecast to be $20.9 billion. The biggest changes are a drop in residential permits and an increase in nonbuilding construction, but overall, total construction value has fallen 12% from last year’s activity,”  according to the University of Colorado Boulder’s 2024 Colorado Business Economic Outlook report. “The forecast for 2024 is for a slight improvement, to $21.2 billion, in the volume of work, which is an increase of 1.6% in spite of a further drop in multifamily construction. Much of the high level of activity comes from completion of work started in a prior year and just put in place this year.”

Because communities in Northern Colorado offer more space and lower home prices, markets in the region remain popular for workers and families looking to stretch out at a relative bargain.

Northern Colorado boasted 10 of the 20 fastest-growing communities in Colorado in 2023, according to population estimates released in May 2024 by the U.S. Census Bureau.”

Northern Colorado boasted 10 of the 20 fastest-growing communities in Colorado in 2023, according to population estimates released in May 2024 by the U.S. Census Bureau.

“More than ever, real estate conditions today are hyperlocal, meaning that factors such as sales prices, homebuyer demand, and inventory, can be specific to cities, zip codes, and even neighborhoods,” Brandon Wells, president of The Group Inc., wrote in a recent BizWest column. 

On the commercial side of the real estate market, industry players are still grappling with the post-COVID-19 new normal.

“Related to the shift to work remotely, the behavioral change is having disruptive impacts on central business districts, commercial real estate occupancy, and real estate valuations. Data from Kastle illustrate workplace occupancy remains below pre-pandemic levels, and that within the workweek, Monday and Friday represent the lowest occupancy, while Tuesday and Wednesday have the highest occupancy,” according to the CU report. “Office vacancy rates hit a 30-year high in Q2 2023, according to CBRE, but that vacancy was concentrated in a minority of buildings. Nonetheless, as loans need to be refinanced over the coming few years, the risk remains about higher vacancy, lower net operating income, and lower valuations in a higher interest rate environment, and where the capital infusion will come from to rescue assets.”

Despite persistent headwinds — from rising interest rates to the post-COVID-19 work-from-home revolution — commercial real estate activity in the Boulder Valley may be poised for increased activity in the middle and back half of 2024.

“There’s nothing to jump up and down about, the numbers are what they are. But I think there is enough good (momentum) and a little bit of an energy shift … that I think, with baby steps, it’ll get a little bit better and better,” Becky Gamble, CEO of the brokerage Dean Callan & Co., told BizWest in late April.