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— Office Properties Quarterly — September 2016
O
ne fact that many
commercial real
estate professionals
are unaware of is
that metro Denver
has the highest amount of
office square feet per capita
of any major metropolitan
statistical area is the coun-
try. This puts us at a disad-
vantage in terms of keeping
occupancy rates low, consid-
ering there are no major pri-
vate employers who would
take up large blocks of space
in the central business dis-
trict, as is common is other
major cities.
Denver’s office market, as
a whole, was hit consider-
ably hard during the down-
turn, with
overall
vacancy
rates
hovering
around 20
percent.
Denver is
a small to
midsize
corporate
environ-
ment, how-
ever, which
brought
many of
the popular submarkets
back faster than one might
have expected, a function of
population growth.
As Denver is an entrepre-
neurial-oriented market and
a very desirable place to live,
this profile of tenancy has
resulted in greatly expanded
employment and positive
office absorption gains. The
overall market now is in the
low teens occupancy wise,
with nearly every submarket
showing positive absorption
in the second quarter. Den-
ver office has become more
attractive to lenders of all
types than at any other time
in history.
The overall market
absorbed over 8 million
square feet since the reces-
sion, and much of this was
in the Class A sector. The
CBD and surrounding sub-
markets are in the most
demand, even though the
second quarter experienced
slightly net-negative absorp-
tion for the CBD, which was
largely a function of the
oil-and-gas-related tenancy
washout.
The largest submarket in
the MSA – the southeast
– has struggled somewhat
since the recession with the
loss of several large office
users and is not as desirable
for modern tenants as the
CBD. However, the south-
east is full of conveniently
located and well-built Class
A and B buildings, which
helped the submarket
obtain positive absorption
year to date. We could be in
the beginning of a Denver
Tech Center revitalization,
especially when considering
the low-cost alternative it
represents when compared
to the CBD and the fact that
many of the older and new
Class A buildings are transit-
oriented developments. The
other office submarkets
around the MSA have seen
modest positive absorption
in the second quarter as well
as year to date.
In my opinion, the fact
that we’ve seen office invest-
ment in the second quarter
on par with 2006 shows that
Denver has become more
familiar to a number of
national and international
investors. Right now there
are nearly 20 major spec
office ground-up or rehab
projects, which shows a
strong belief by developers
and investors alike that this
is not 2006 all over again. We
are poised for serious office
absorption in these key sub-
markets for the next several
years, at minimum.
In the capital markets,
office is more attractive to
lenders in the Denver MSA.
The stigma of Denver office
being overbuilt has been
gone for a long time, and,
given the population and job
growth, Denver is as attrac-
tive to the lending com-
munity as any noncoastal
market. Institutional equity
investment has increased
substantially, and the life
Mark Jeffries
Vice president,
producer,
Northmarq Capital,
Centennial
Financial Market
