CREJ - Office Properties Quarterly - October 2015
With undercurrents of change occurring in the downtown Aspen office space market, results will not be clear for a while. There are few existing first-class office properties, and new buildings are now coming on line. Because of the upcoming demolition of a building that sold earlier this year, some local government departments are losing their leased office space. Concurrently, there is a movement toward updating, expanding or relocating all city and county government offices. It is still being determined whether these government office changes should be accomplished by remodeling existing facilities, constructing new municipal buildings, or some combination of both. The city and county have started to lease office spaces to house some functions temporarily (for a couple of years) while expansion, remodeling or construction is in process. For example, the police department leased auxiliary office space because it was bursting at the seams already. While this is sorted out by the forces of supply and demand over the next couple of years, our usual market forces are operating too. Aspen is famous for shopping as well as skiing, hiking, biking, culture, music, art, history, glamor and natural beauty. As Aspen commercial real estate brokers, much of the leasing work is seasonally focused on longterm leases for downtown retail including luxury tenants, such as Dolce & Gabbana and Louis Vuitton, popular local shops, such as Katebaby and Miller Sports, and many art galleries. These prime retail leases grab headlines at very high rents in the range of $100 to $200 per square foot. All the vibrant aspects of our “little mountain town” would not exist without the quiet year-round support of business and government functions that keep Aspen alive. Office space is required for attorneys, architects, appraisers, consultants, doctors and dentists, media, banks and (of course) many real estate brokers. Aspen thrives as a sophisticated small city with realworld professionals and businesses in addition to the more visible resort attractions. While leasing of prime retail space is fun and fast-paced (with deadlines for stores to open on time), Aspen office leasing is unpredictable and hardly seasonal. The rents are more static and somewhat location driven. Aspen lease rates are quoted as triple net rents and tenants also pay their prorata share of taxes, insurance, utilities, common area maintenance and management for the building. Landlords rarely provide much in the way of tenant improvements or allowances. Current office space rents for new leases generally vary from triple net $20 per sf up to $65 per sf with spaces south of Main Street (going toward the Gondola and ski slopes) enjoying higher demand with higher rents overall. Office spaces with amenities such as outdoor decks, views, elevators, A/C, high ceilings, skylights and private bathrooms achieve the highest rents. Unlike many big city offices, Aspen has many funky office spaces within older or historic buildings in great downtown locations with few amenities. Aspen offices have no building security guards, few parking lots and fewer underground parking garages. Parking spaces are scarce overall because everyone is encouraged to walk, bike, bus or carpool to work. Tenants for Aspen’s smaller office spaces are picky and often choose to work at home rather than lease a space that is not in the desired block, the right configuration or at “affordable” monthly rent. In recent years, more office units have become available for sale and have sold well. These vary in size from about 300 sf to 3,000 sf with prices around $1,000 per sf depending on attributes. Sales of office units to end users mostly occur at recently remodeled or redeveloped downtown properties. Older condominiumized office units rarely have resold and are more likely to be owned by investors who lease them out to office tenants.
Vacancies always are higher for office spaces compared with Aspen’s extremely low vacancy rates for prime retail space. Aspen office spaces face competition from more affordable “down valley” lease rates with the added attraction of a shorter commute for some employees. Only 3 miles from downtown, the Aspen Highlands ski-area base village successfully converted most of the commercial space from retail to office uses. Some Aspen professionals have relocated to upscale and affordable ski-in/ski-out offices there, while the huge and ongoing expansion of the Aspen Valley Hospital within 2 miles from downtown absorbed doctors and medical offices into its beautiful new facilities. These various market forces are working together and against each other to sustain a strong market for office space in downtown Aspen without big changes in lease rates anytime soon, while the constant presence of skis and bikes in offices still confirms the commitment to Aspen’s work-hard/play-hard lifestyle.