CREJ - Office Properties

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Page 6 — Office Properties Quarterly — January 2015
T he Front Range office mar-
ket consists of 222.5 million
square feet from Trinidad to
Fort Collins/Greeley with a
respectable overall vacancy
rate of 9.9 percent. Overall Front
Range vacancy rates have ticked
down 120 basis points from a 10.7
percent vacancy
rate at the start of
2014. Consider, too,
the Front Range
has 251 million sf
of retail (with a 5.5
percent vacancy
rate) and 340 mil-
lion sf of industrial
(with a vacancy rate
of 4.7 percent).
The overall 813
million sf of com-
mercial real estate
on the Front Range
is healthy in all sectors with office
product making up 27.4 percent of
the overall commercial product. Con-
struction cranes are the visible sign
the market is healthy and ready for
new product.
Denver’s central business district
market overview includes Lower
Downtown and the Platte Valley. The
overall CBD consists of 34.8 million
sf with a vacancy rate of 10 percent
and average full-service rates of
$31.87 per sf. Vacancy rates have
declined 120 bps from 11.2 percent
at the start of 2014, and lease rates
have increased $1.17 per sf during the
same time period.
The LoDo submarket is the stron-
gest submarket in the state. At 8.6
million sf, the current vacancy rate
is 6 percent. Average lease rates are
$34.58 per sf. Currently four build-
ings are under construction in LoDo:
• 1601 Wewatta, 10 stories –
299,544 rentable sf
• 1401 Lawrence St., 21 stories –
311,015 rentable sf
• The Triangle Building, 1550
Wewatta, 10 stories – 242,807 rent-
able sf
• The Lab, 2420 17th St., four stories
– 78,576 rentable sf
The 2015 CBD outlook is positive.
All roads, rail lines, pedestrian and
bike paths lead to Union Station.
The opening of the train line from
Union Station to Denver International
Airport will be a significant game-
changer for the area. The announce-
ment of Whole Foods at 17th and
Wewatta streets coupled with the
construction of King Soopers at 20th
Street and Chestnut Place further
enhances, stabilizes and affirms the
bullish outlook for downtown Denver.
Other proposed office develop-
ments include:
• Z Block, 1800 Wazee – 235,002
rentable sf
• A Block, 1881 16th St., five stories
– 58,000 rentable sf
• Union Tower West, 1801 Wewatta
St., 12 stories – 100,000 rentable sf
• Chestnut Building, 16 Chestnut
Place, 18 stories – 547,199 rentable sf
• 1144 15th St., 38 stories – 640,429
rentable sf
Oil and gas companies are a sig-
nificant driver of the downtown office
market. With the recent decrease in
the price of oil, it’s conceivable these
proposed developments will remain
just that through 2015.
The southeast suburban office
market runs along Interstate 25 from
Interstate 225 to Lincoln Avenue
and includes the Denver Tech Cen-
ter, Greenwood Plaza, Panorama,
Inverness and Meridian. The market
consists of 45.7 million sf and has a
vacancy rate of 11.8 percent. The SES
market is diverse (telecom, health
care, defense industry, engineering
and financial industries) and active
from small to large tenants. There are
a significant number of large tenants
(i.e., 70,000 sf or larger) currently in
the market that are competing for,
and will ultimately lease, the large
blocks of available space. New con-
struction includes CoBank Center, an
11-story, 276,000-rentable-sf build-
ing scheduled for completion in the
fourth quarter. The SES submarket is
ripe for speculative development, and
potential new office developments
include:
• Village Center DTC, 10 stories –
300,000 rentable sf
• One Belleview Station, 16 stories –
340,000 rentable sf
• Village Center Station II, 9 stories
– 200,174 rentable sf
• The Madden – Palazzo Verdi II, 14
stories – 428,749 rentable sf
Northern Colorado, which con-
sists of Fort Collins and Greeley, has
10.7 million sf of office space with a
vacancy rate of 5.1 percent, down 70
bps from the 5.8 percent vacancy rate
at the start of 2014.
The Northern Colorado economy is
strong and robust with Weld County
adding more than 9,000 nonfarm
jobs in the past two years and Lar-
imer County adding 11,000 jobs
during the same time period. Weld
County experienced a good part of its
growth in the food processing and oil
and gas sectors while Larimer Coun-
ty’s growth is oriented toward health
care, education, professional, sci-
entific and technical industries. The
strong economy will bode well for the
Northern Colorado office market.
Southern Colorado, including Pueb-
lo and Colorado Springs, has 30.9
million sf of office with a vacancy
rate of 11.3 percent. While Pueblo’s
office vacancy has decreased 210
bps from the start of 2014, Colorado
Springs’ vacancy has increased 30
bps. Health care and transporta-
tion are primary growth industries
in Pueblo with health care, finance
and insurance, and technical services
driving the Colorado Springs econo-
my. The 2015 office forecast is mod-
est but there is continued demand for
office space.
The Western Slope has 2.8 million
sf of office space from Durango to
Craig boasting a modest vacancy rate
of 5.3 percent. However, the vacancy
rate has increased 140 bps, from a
3.9 percent vacancy rate at the start
of 2014. Considering the Western
Slope has 22.5 million sf of retail
space (with a 4 percent vacancy rate)
and 4.7 million sf of industrial (with a
6.6 percent vacancy rate), the overall
32 million sf of Western Slope com-
mercial real estate is healthy. Western
Slope office product represents less
than 9 percent of the overall com-
mercial market. With no new mult-
itenant office construction planned,
the coming year’s outlook is positive.
The University of Colorado’s Leeds
School of Business released its report
on the 2015 Colorado business
economy outlook, which predicted
a population “increase of 85,000, or
1.6 percent, for 2014; 89,000, or 1.7
percent, for 2015; and 93,000, or
1.7 percent, for 2016.” By 2015, the
report forecasts Colorado’s population
to reach 5.4 million. The unemploy-
ment rate, currently 5.8 percent, is
predicted to continue to decrease
through the year. With expanding
companies, new jobs and an increase
in population, the 2015 forecast for
the Colorado commercial office sector
looks strong.s
Leasing Market
William B. Lucas
Senior vice
president,
principal, Cassidy
Turley, Denver
A snapshot look at third-quarter 2014 office properties, by submarket and office class
Denver office market's net absorptions, asking rents and vacancies