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Page 12 — Office Properties Quarterly — January 2015
Market Driver
by Michelle Z. Askeland
The energy industry is an important
player in the Denver office property
market in this post-recession cycle.
Energy helped strengthen the over-
all office market by driving up lease
rates and pushing vacancies lower,
said Jessica Ostermick, CBRE director
of research and analysis.
The total occupied footprint in
downtown Denver of oil and gas
companies is 4.45 million square
feet, which is 20 percent of the occu-
pied downtown market, she said.
The year-to-date net energy sector
absorption through the third quarter
is 313,000 sf. Additionally, energy
companies accounted for 12 per-
cent, about 1.7 million sf, of all leas-
ing activity in Denver since 2012.
In 2014, year-to-date third quarter,
energy leasing activity was 878,000
sf.
“The energy industry is well funded
and includes all types of real estate,”
said Lindsay Brown, JLL senior vice
president. “There is no industry that
has a greater financial impact on our
state at the moment.”
The majority of Colorado-based
energy firms are located in the down-
town area. Numbers range from
70-plus percent to 90-plus percent of
these businesses. The rest are mainly
located in the Denver Tech Center.
According to CBRE’s Energy Sec-
tor Trends Report from October, the
downtown multitenant buildings with
the highest concentration of energy
occupiers are Granite Tower, Republic
Plaza, World Trade Center II, 1700
Broadway, World Trade Center I and
1001 17th St. The largest energy ten-
ants in Denver are Encana, Anadarko,
Newfield Exploration, and Whiting
Oil and Gas.
“If you look at other energy hubs,
you’ll see that major oil and gas ten-
ants like high-profile locations with
nice urban environments,” said Oster-
mick. “They want the prestigious,
premier property locations and build-
ings.”
After experiencing a “lost gen-
eration” in the mid-1980s to early
2000s, when few young people went
into the field, millennials are now
joining the energy industry workforce
in high numbers, Brown said.
One reason for Denver’s popular-
ity is its attractiveness to millenni-
als. “When they’re trying to recruit
a petroleum engineer coming out of
college, Denver is a very attractive
city,” said Brown. “It can be hard to
compete with the big guys, so a lot of
local companies are trying to do cool
things with their company culture.
You’ll typically still see private offices,
but now they’re incorporating large
open-area spaces, café-style break
rooms, rooftop balconies or any out-
door space, and emphasizing their
proximity to bars and restaurants.”
Oil and gas companies are still
predominantly private office environ-
ments, with the exception of some
midstream companies, he said.
“[It’s a] competitive job atmo-
sphere so tenant-friendly amenities
like quality restaurants and athletic
clubs in close proximity are usually a
plus,” said Anthony D. Albanese, vice
president of CBRE’s energy facilities
group. “They tend to have a bit of a
herd mentality in locating near com-
petitors/industry peers. Field service
companies specifically like to be near
their clients and exploration compa-
nies.”
According to a December 2014
report, Research Rich Colorado,
from the Colorado Energy Coali-
tion, the state ranks ninth in fossil
fuel employment concentration with
47,590 direct jobs, and ranks sixth in
clean-tech employment concentra-
tion with 23,410 direct jobs.
“In 2014, the fossil fuel sector
directly employed 47,590 people,
and the clean-tech sector directly
employed 23,410 people,” the report
said. “These 71,000 direct energy
workers support an additional
179,540 indirect workers across the
state, for a total of 250,540 energy
industry employees statewide. The
economic impact of these energy
industry employees is $15.6 billion.”
As Colorado’s unemployment num-
bers continue to decrease, cultivating
talent within the state is important,
said Scott Prestidge, Metro Denver
EDC energy director.
There are several higher-education
schools – such as the Colorado
School of Mines, Education Corpora-
tion of America’s Ecotech Institute
and the Center for Revolutionary
Solar Photoconversion – that have
strong academic programs special-
izing in these fields. Having schools
and potential jobs in the same area
helps with recruiting, said Lisa
Strunk, Development Research Part-
ners senior economist.
The jobs are competitive, which
provides stability to the office mar-
ket. Finding the right employee
can require a lot of research, so the
positions are fairly stable once a
successful candidate is found. “You
consistently hear, ‘It took us two
years to find a top-notch engineer,’
so you know they’re not just going to
let them go because the price of oil is
down for a few months,” Brown said.
Another major impact the energy
industry has on Colorado’s office
property market is referred to as a
“halo effect.” This takes into account
all the other businesses that crop up
to support the energy industry.
Many of these support services
Source: Energy Information Administration, CBRE Research
Leasing activity, which includes renewal and subleases that do not count toward absorption. Energy companies accounted
for 12 percent of all leasing activity in Denver since 2012 through third-quarter 2014.
Source: Energy Information Administration, CBRE Research
Source: Cresa
This type of drop in oil prices has happened four times in the past 30 years.
Denver rental changes when oil prices drop
Denver leasing activity
Oil price and production since 2007