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— Office Properties Quarterly — June 2016
A Different Approach to Denver Commercial
Real Estate Solutions and Services
In a partnership focused on your strategic business objectives, Avison Young
delivers intelligent commercial real estate solutions that add value and build
competitive advantage for your enterprise.
Our office offers a full range of real estate solutions:
• Leasing and sales brokerage
• Property management
Learn how our approach might help you at:
Partnership. Performance.
For further information
please contact:
AlecWynne,
Principal, Managing Director
720.508.8112
• Project and construction management
• Lease administration
D
enver consistently is ranked
as one of the best places to
live and work. Our economy
is growing and vibrant,
population and employ-
ment rates are rising and the real
estate market is booming. Our state
attracts large employers due to the
strength of its economy as well as a
highly educated and growing work-
force. Denver is a hub for innova-
tion and entrepreneurship and has
been named one of the best places
for business and careers. The life-
style and recreational opportunities
offered in Colorado enable com-
panies to retain top talent as they
grow. While Denver is ideally posi-
tioned for continued office develop-
ment, one of the byproducts of our
strong economy and commercial
real estate boom is a steady increase
in office construction costs.
Historical inflation of materi-
als and building costs is estimated
at about 2 to 2.5 percent annually.
However, in the past six months, the
cost of developing office space in the
area has increased noticeably. What
are some of the key factors driving
this increase, and how can develop-
ers successfully deliver new office
facilities in this increasingly com-
petitive landscape?
Contributing factors.
When the
real estate market suffered dur-
ing the recession, many tradesmen
left the construction and develop-
ment industry, and the skilled labor
workforce was significantly con-
solidated. As the economy became
more robust and the commercial
construction industry strengthened
in Denver, subcontractors began
experiencing an imbalance between
the volume of work
and the size of
today’s qualified
workforce, signifi-
cantly driving up
the cost of office
development. This
is compounded
by the increased
demand for resi-
dential develop-
ment to accom-
modate the new
jobs resulting from
Denver’s growing
economy, further
adding to the need for subcontrac-
tors.
The continued investment
in major public improvements
strengthens our economy, such
as the expansion of Interstate 70
and the FasTracks transit program,
including the opening of the com-
muter rail to the airport. While these
public improvements are enormous-
ly beneficial for our community, they
strain the capacity of the construc-
tion community to manage public-
and private-sector work.
There was a notion that labor
costs would plateau or decrease due
to returning labor from the oil and
gas industry, but this has not widely
occurred – in part because of the
variance in wages for the oil and
construction trades as well as differ-
ences in specialties and experience.
The industry is not experiencing
savings from the lower commodity
costs of key construction materials.
While the costs of steel and oil have
decreased, we haven’t seen those
savings translate into the stabiliza-
tion of construction prices in the
local market. In fact, research indi-
cates that commodity prices actually
increase when the real estate mar-
ket is performing well.
Additionally, land value plays a
major factor in elevated office devel-
opment costs. The cost per buildable
square foot has increased from pre-
vious cycles by $10 to $30, depend-
ing on location. Land value in the
Denver metro area has nearly dou-
bled in some areas due to inflation,
improvement of the local economy
and, subsequently, the increased
buying power of tenants to afford
higher rent. Increased development
in other sectors, like multifamily,
also has influenced higher land
prices, which in turn affects office
development.
Parking, which often is a major
consideration for employers, is
noticeably more expensive for both
above-grade and subgrade options.
When compared to costs from past
cycles, above-grade parking in down-
town Denver increased by approxi-
mately $4,000 to $9,000 per stall and
subgrade parking increased by about
$10,000 to $20,000 per stall. With the
cost of parking being highly depen-
dent upon the location of the proj-
ect and the efficiency of each stall,
strategic design is critical and can
Marshall Burton
President and
CEO, Confluent
Development,
Denver
Market Drivers
Britt Nemeth
When done right, building in today’s competitive environment still makes sense. For
example, the LAB, co-developed by Confluent Development and Brue Capital Partners,
recently won NAIOP’s Innovative Project of the Year award.
