CREJ - Office Properties

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January 2015 — Office Properties Quarterly — Page 5
A s 2014 closed, Denver con-
tinues to demonstrate that
it can compete at the same
level as the country’s big
six markets – Boston, Chi-
cago, Los Angeles, New York, San
Francisco and Washington, D.C. The
Mile High City boasts one of the
healthiest economies in the nation,
led by a diverse blend of industries,
impressive job growth and an influx
of inbound migration. As a result,
Denver’s economy fueled increasing
interest over the years from capital
sources both domestic and foreign,
creating a diverse investment pool for
commercial real estate throughout the
metro region.
The U.S. dominates the country
rankings for most stable and secure
investments by a wider margin than
any year since the global financial cri-
sis. The U.S. ranks first among coun-
tries providing the best opportunity
for capital appreciation (U.S., Spain,
U.K., China, Australia, Mexico and
Brazil). It also leads the global rank-
ings for planned real estate acquisi-
tions in 2015. Additionally, U.S. cities
hold three of the top five positions for
the world’s top cities for investment:
New York, London, Tokyo, Los Ange-
les and San Francisco.
Domestic and foreign investors
take into account numerous mea-
sures when looking to strategically
deploy capital, but the criteria gener-
ally can be summed up by one chief
driver: the economic fundamentals
of the target city. While gateway cit-
ies generally are the preference for
foreign capital, secondary markets
with robust econo-
mies recently have
sparked interest
overseas. Second-
ary markets saw an
impressive level of
investment activity,
about $140 billion
year to date. Of that
$140 billion, 64 per-
cent was focused
on faster-growing
locations, such
as Denver, which
instills confidence
for future investments in these areas.
Throughout 2014, Denver displayed
tremendous job growth, which is
evidenced by an exceptional 3.6 per-
cent unemployment rate for October
2014, 280 basis points lower than
the national average. Additionally, 58
companies have announced major
relocations and/or expansions in the
Denver metro area, while the city has
added about 40,800 jobs, driving
employment growth to a healthy 2.9
percent.
Meanwhile, the metro area’s popula-
tion growth rate consistently outpaces
the national average, evidenced by
a 1.88 percent growth rate in 2013
compared with the national growth
rate of 0.72 percent. From 2010-2013,
the Denver metro area population
grew 5.52 percent, the highest growth
rate of the 20 most populated met-
ropolitan statistical areas outside of
Texas. Experts project the population
will grow to about 4.8 million people
by 2040, net growth of more than
59.6 percent, or 1.8 percent per year.
A snapshot of the capital flows in
2014 clearly depicts the domestic and
foreign investment activity we can
expect to see in 2015 as a result of a
booming economy.
As of third-quarter 2014, Den-
ver experienced a total volume of
approximately $1.65 billion in office
investment sales activity throughout
the metro region, slightly exceeding
the transactional volume of $1.63
billion for the same period in 2013.
With another $520 million already
executed in the fourth quarter and
approximately $110 million under
contract, Denver’s total transactional
volume for office assets is forecasted
to eclipse $2.2 billion for 2014. An
average price per square foot of $190
surpasses historical highs while an
average cap rate of 7.05 percent is the
lowest recorded in the past six years,
according to Real Capital Analyt-
ics. Values are verifiably increasing
in Denver and foreign and domestic
capital groups are certainly taking
action.
Of the $1.65 billion that has been
transacted so far in 2014, approxi-
mately $532 million, or 32 percent,
has come from overseas capital,
while cross-border domestic capital
represents an additional 44 percent.
Foreign investments account for 10
transactions in the Denver metro area,
with Canadian capital taking credit for
seven transactions for a sum of $390
million. Ivanhoe Cambridge, a Canadi-
an-based firm, purchased a 40 percent
interest in two landmark towers in the
central business district, U.S. Bank
Tower and Tabor Center, resulting in a
$200 million transaction.
German capital also held a large
presence in 2014 with approximately
$133 million in activity. GLL Real
Estate Partners, a German-based
real estate fund management group,
acquired the two Union Station wing
buildings, the IMA NorthWing Build-
ing and Antero SouthWing building.
Both buildings traded at a record-
high price per sf of $602 and $601,
respectively. While these two notable
transactions were in the form of direct
foreign investment, the larger con-
tingency of foreign capital is gener-
ally performed through a U.S.-based
adviser or operator. For foreign inves-
tors, operators and advisers provide
an efficient way to identify potential
investments and place capital, because
money from overseas typically has
multiple approval layers that are slow
to react to domestic investment funds’
timing.
Denver continues to hit the radar of
many domestic and foreign investors
who are looking to expand beyond
the coasts in search of quality invest-
ment opportunities. There are more
investors seeking real estate acquisi-
tions than there are opportunities in
the coastal cities, which gives Denver
great exposure. Investors are recogniz-
ing the city’s presence among primary
real estate markets and have identi-
fied Denver as a market that offers the
opportunity to achieve returns that
exceed those realized in the gateway
cities. With the economy’s strength
and promising outlook, Denver is
bound to attract an even deeper pool
of capital, domestically and globally.s
Investment Market
John Jugl
Senior managing
director, HFF,
Denver
INTRODUCING
New Ownership, New Improvements & New Light Rail Station
Jonathan Jones | John Hutto | Matthew Sanger
• Up to 46,000 square feet of office space available for lease
• Prominent building signage available
• Strong ownership and management
• Upgraded lobby and common areas
• Belowmarket lease rate
13900 E. Harvard Ave. I Aurora, CO 80014
303.745.5800