Office Properties

13 / 28

July 2015 — Office Properties Quarterly — Page 13
Market Drivers
Courtesy Cresa
Job growth and office rental rates in metro Denver.
Courtesy Cresa
Oil prices and office rental rates in metro Denver.
UNRIVALED
TALENT.
UNMATCHED
RESULTS.
With a passion for everything that makes our state so
special, our firm is the unrivaled leader in commercial
real estate services in Colorado. Strategic, forward-
thinking and results-driven, our 500 professionals are
committed to delivering the best to our clients and the
community we serve.
For more information on how CBRE can assist you with your
commercial real estate needs in Colorado, please contact:
Pete Schippits
Senior Managing Director
+ 1 720 528 6440
opportunities for other sectors, said
Harrington.
An interesting comparison to the
sublease space now available is the
850,000 sf of space that came on
line at 1801 California St., when the
Qwest and Century Link deal was
finalized in late 2012 and early 2013.
That much space was the equivalent
to one or two new office buildings
coming on line, but didn’t cause
nearly as much conversation, said
Johnson. And downtown Denver is
leasing up that space right now.
“I think this is a healthy enough
downtown that we’re going to be
able to absorb this excess space,”
said Charlie Lutz, Cresa senior advis-
er. “There’s a lot of positive things
trending in Denver right now.”
With that in mind, don’t expect
rental rates to change anytime soon.
Compared with the 1980s, building
owners have a different mental-
ity, said Johnson. In the 1980s, 13.5
million sf of new product came to
market, which contributed to the
dramatic spike in vacancy. Presently,
there is about 3 million sf under
construction. These new buildings
are under no pressure to reduce
rents unless difficulties in lease-up
are experienced after completion.
Of all the current office product
downtown, most of the buildings
are 90 percent leased or better, with
many of the leases extending seven
or eight years out. These owners
don’t need to panic, and they don’t
need to respond in a rate-slashing
way, Johnson said.
A white paper published by Cresa
examined the relationship between
rental rates and oil prices. The
results were inconclusive:
• 1985-1986: Oil prices dropped 45
percent and rent rates dropped 15
percent
• 1990-1993: Oil prices dropped 32
percent and rent rates increased 19
percent
• 1996-1997: Oil prices dropped 42
percent and rent rates increased 6
percent
• 2008: Oil prices dropped 42 per-
cent and rent rates dropped 11 per-
cent.
However, the same study found
a direct correlation between job
growth and rent. The University
of Colorado Leeds School of Busi-
ness is predicting the state will add
between 30,000 and 35,000 new
jobs. (It originally predicted the
state would add 45,000 jobs, but
readjusted after oil prices dropped.)
This correlation would predict
Denver office rates will continue
to increase. “It’s still positive job
growth,” Johnson said. “More jobs
means more companies need to
lease more space.”
In the 1980s, Denver saw 13.5
million sf of new supply delivered,
which is almost half the office
space in the CBD – the current total
is 25.8 million sf, according to NGKF
statistics. Up until 1985, demand
outpaced supply; after 1985, the
opposite was true. Following 1986,
there was no new construction until
2000, and from 2000 to the present,
a total of 4.1 million sf of new office
product has been completed. Den-
ver is witnessing a much healthier
balance of supply and demand this
time around. s