Rental rates are up, vacancies are down, and demand has never been higher. But major changes — including a national slowdown as well as growth in the super-heated marijuana industry — are likely to have profound effects in commercial real estate in the next two to five years.

Top players in the commercial real estate industry gathered Tuesday for the RealShare Greater Denver conference to talk about what they’re looking forward to — and what they’re watching out for.

Here are the top things to watch for in the coming months:

1.) Economic slow-down, but when?

A prevailing topic of conversation was a question: How long will the Denver metro economy continue to gain momentum?

“This is not the new normal,” said Clif Harald, executive director of the Boulder Economic Council. “There is going to be a correction.”

While little data exists pinpointing when a slowdown might occur, most participants believe it is inevitable.

“It can’t last,” echoed Mark Bowman, senior vice president at DCT Industrial Trust. “We’re going to go down to a more normalized market.”

But, he added, “that’s not a bad thing.”

Boulder County’s highly diverse economy is set up for long-term success even in the face of an economic downturn, said Harald.

“We have such a diverse economy, with the outdoor rec industry, tech, biopharma, natural and organic foods,” he said. “Longmont is diversifying, Louisville is diversifying.”


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2.) Marijuana operations making moves

Boulder County has 24 commercial grow operations, ranging in size from a 20,000-square-foot warehouse space to a one-acre greenhouse, according to the county marijuana licensing agency.

As one of the few areas amenable to the pot industry, Boulder and Denver counties make up nearly all of the market for those companies. But that may be changing.

“What we see is less pressure on the Denver commercial market to take on marijuana,” said Jeff Romine, chief economist for the Denver Office of Economic Development. “Pueblo and Trinidad are going after a share of the market, so that will open up some spaces.”

Smaller companies may decide to move to lower-cost areas or join forces to create larger entities in a bid to push down expenses.

“(Costs) are pushing $180,000 a year in rent and a further $50,000 to $60,000 in utilities,” said Jason Thomas, CEO and founder of Avalon Realty Advisors, which specializes in the medical marijuana field. “I think we will see the consolidation of small operations. We are already starting to see larger facilities.”

3.) Boulder companies consolidating, expanding

Historically low commercial vacancy rates have forced companies to spread their operations far and wide, said Harald. But recent openings and development have paved the way for those businesses to consolidate.

Harald held up cloud storage designer SolidFire as an example.

The company announced Tuesday that it would move operations to 62,000 square feet in the planned PearlWest site once home to the Daily Camera, tripling in size. SolidFire’s 250 employees are currently scattered among three buildings.

Harald said he expected more companies to follow suit as space becomes available. And those that can’t find space will find other ways to make it work.

“The prevailing myth is that Boulder can grow ’em but can’t keep ’em, but that is categorically untrue,” he said. “Companies in Boulder are doing everything they can to stay in Boulder.”

4.) Growing demand for multi-family housing

Two groups at opposite ends of just about every spectrum are united in driving demand for multi-family housing units: Baby boomers and millennials.

“Those groups are very similar in the way they are acting in the marketplace, said Romine. “We are seeing increases in 25- and 55-year-olds living in the same multi-family developments.”

These groups seek similar lifestyles available in city centers and often only attainable through rentals.

“We have become a renter nation,” said Laurie Lyons, partner for Capital Management Group. “People want to live closer to work. They want walkability, access to transit.”

Lyons said people are willing to trade the space of the suburbs as the price of admission to that lifestyle.

“People are willing to live smaller,” she said. “They are squeezing out every square foot.”

So are commercial investors.

“We are taking cues from the airline and hotel industry and charging for everything,” Lyons said. “Parking is no longer free. Pets aren’t free.”

“These are millennials who are accustomed to having high-end amenities and paying for it.”

Shay Castle: 303-473-1626, castles@dailycamera.com, @shayshinecastle