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Page 12 — Office Properties Quarterly — March 2017
Denver Highlight
D enver continues to capi-
talize on its strengths as
a growing market with
exceptional talent. We have
diverse companies choosing
to locate downtown and millennials
taking advantage of an accelerating
startup culture, heightening the focus
on our city.
Over the next five years, downtown
Denver’s forecasted population growth
rate is 12.6 percent compared to the
U.S. average of 3.7 percent.While this
growth will undoubtedly make down-
town Denver even livelier, it raises the
issue of ensuring we have adequate
supply of competitive and sizable
blocks of office space to meet this new
charge.
Those developers who can proac-
tively plan for the construction of
new, larger-size buildings or have the
wherewithal for viable adaptive reuse
of large properties will be well reward-
ed during the upcoming four to six
years with steady tech tenant demand
continuing to solidify in downtown
Denver.
Our concentration of talent has
attracted diverse companies seeking
to start operations, relocate or expand.
Tech startups have contributed heav-
ily to new commercial lease activity.
The total number of tech startups in
downtown Denver increased by 13
percent over the past two years. In the
past year, five of the largest funding
rounds expanded to Denver such as
Welltok, Galvanize, Ibotta, Protect-
Wise and GoSpotCheck, and nearly 8
percent of center city businesses are
startups employing more than 4,500
people collectively.
Denver’s competitive office rents
also have generated
interest. Our over-
all average office
rental asking price
is $25.69 per square
foot – still sig-
nificantly cheaper
when compared
to the epicenter of
tech startups, San
Francisco ($69.77
per sf), and submar-
kets such as Seattle
($34.30 per sf) and
Austin, Texas,
($34.19 per sf).We are roughly on par
with emerging tech cities such as Salt
Lake City ($24.24 per sf) and Phoenix
($24.26).
Much of the current tenant demand
is for 5,000 to 20,000 sf of office space,
and those seeking such space have
numerous options, whether move-
in ready or built out, to meet their
requirements. Conversely though,
new tenants seeking 100,000 sf of
downtown space have limited options,
typically in second-generation build-
ings that cannot accommodate their
requirements.
Titans such as Amazon, which is
seeking 100,000 sf to 150,000 sf, and
AIG, seeking 300,000 sf, have very few
appealing options for large blocks of
modern space downtown.
Two new buildings will help. Hines’
40-story 1144 15th Street is on track for
completion in January. And Patrinely
Group’s 32-story Block 162 is due to
break ground at the end of this year,
for delivery of an additional 606,500
rentable sf in early 2020.
These two significant projects will
offer large-block, high-rise space, the
first in downtown Denver in more than
three decades. Most other demand
will be relegated to our older buildings
with smaller floor plates, shorter ceil-
ing heights, challenged glass lines and
fewer amenities. Although this older
building stock will continue to fill an
important need, additional high-rise
buildings with large blocks of space
will be required to accommodate large
companies seeking downtown space.
The success of new construction
and tenants willing to pay for it has
been underscored by the significant
lease-up success enjoyed by the most
recently completed new buildings in
downtown Denver. Clearly, both small
and sizable tenants alike are showing
an appetite and willingness to pay top-
end rates for new, efficient space.
With a firming oil and gas sector
complemented by an ever-increasing
demand by tech companies for addi-
tional space, the lack of attractive large
blocks of available space likely will be a
hindrance on long-term space absorp-
tion in the downtown market and
may yield some relocations out of the
submarket to suburban locations along
light rail as these buildings will be less
expensive and will be the only options
for large blocks of space to be quickly
delivered.
The lack of large blocks of space has
been a challenge in our market before,
notably when Boeing was considering
Denver for its headquarters relocation
from Seattle in 2001.Too often, Den-
ver will lose to competing cities such
as Dallas, Phoenix and Salt Lake City,
which generally have large blocks of
space available in new buildings.
Continuing the improvement of
our older office buildings and focus-
ing on long-term investment in new
construction will allow office build-
ing owners to capitalize on Denver’s
renaissance. s
Doug Wulf
Executive
managing director,
Cushman &
Wakefield, Denver
While downtown Denver can meet current tenant demand for up to 20,000 square feet
easily, tenants seeking larger blocks of space have very limited options.