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Page 26 — Office Properties Quarterly — December 2016
Market Update
1.4 million and 1 million available
in these markets, respectively, that’s
the equivalent of 2.6 percent and 1.5
percent of the total respective space.
“So it’s material, but it’s not earth
shaking,” he said.
Another important key to under-
standing the current sublease market
is identifying the main industry – oil
and gas companies – subleasing space
downtown. Unlike the previous oil
bust of the 1980s, downtown Denver
now enjoys a diversified business
market, with oil and gas accounting
for about 20 percent of downtown
office market tenants. However, due
to the drop in oil prices, these tenants
now make up about 60 percent of the
available sublease space in the down-
town market, totaling almost 900,000
sf of available space, said Holm.
Further, of that sublease space, oil
and gas firms make up four of the top
five largest blocks of available space,
which equals 52 percent of the entire
sublease space available, said David-
son.
Of these four major sublease spaces
– two are 100,000 sf, one is 230,000 sf
and the last is 50,000 sf – all but one
have four to five years remaining on
their leases.
“The largest sublessors downtown,
representing 60 percent of the oil
and gas sublease space, are all credit
users, so these are not people who are
going to default,” Holm said. “They’re
going to continue to pay the rent and
landlords will continue to collect, and
while those companies may sublease
their space at a discount, the over-
all impact on the market is muted
because they’re not a risk of default.”
The SES market’s sublease space
is spread across industries, which
appear to result from a combination
of factors without anything in particu-
lar leading the way, Holm said.
Potential Relief
There has been some activity
backfilling this sublease space by a
few oil and gas firms that are taking
advantage of the current market and
expanding. Law firms and profes-
sional services also are a natural fit
for the space configuration, but it’s
hard to point to one specific industry
that is gobbling up the spaces.
Thanks to Denver’s diverse econo-
my, there’s a variety of potential ten-
ants, ranging from tech to health care
to finance and advertising to food
services, that could be interested,
said Lee.
“This is the best-valued space in
downtown, because you’re going to
be in the $45- to $50-per-sf range on
space in Central Platte Valley or LoDo
for new construction,” Lee said. “This
space can come in at 50 to 60 percent
of that cost, so it’s really where the
value is. The question is, is the fit
appropriate?”
There are two major challenges
when filling sublease space: configu-
ration mismatches and timeline mis-
matches.
A user must be willing to use the
space in its existing configuration.
The sublessor does not want to