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September 2017 — Office Properties Quarterly — Page 21
Market Insights
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A s a commercial real estate bro-
ker for the past 19 years spe-
cializing in office leasing and
sales and a Denver native, I
have seen several boom times
as well as busts, but I have not seen
such a sustained period of prosperous
times as we are currently in right now.
Colorado has one of the most educated
populations in the country. Combining
high education with great weather and
a plethora of outdoor activities makes
the state an attractive place to live and
work.
New employers are entering the Den-
ver metro market to capitalize on the
highly educated and savvy workforce.
At the same time, existing employers
are expanding operations and growing
their office space.The office market
is benefiting from job growth from a
diverse industry base, resulting in low
unemployment.
The question I am often asked is,
“How long will this market continue?”
My response is that now is the time to
position your assets and businesses for
long-term growth and stability.
Increased professional and indus-
trial diversification has allowed the
office market to withstand some of the
issues that were devastating in decades
past.When oil and gas prices recently
dropped, the office market was able to
offset these losses and remain strong
because of the influx of technology,
financial, health care, bioscience and
aerospace companies entering the
market.This diversified industry base
along with a thriving economy has
led to speculative office development
that is in full swing, with most proj-
ects concentrated in the lower central
business district with projects like the
671,101-square-foot,
40-story, Class AA
office tower current-
ly under construc-
tion at 1144 Fifteenth
St. by Hines and the
290,000-sf, 22-story
office tower at 1401
Lawrence St., devel-
oped by First Gulf.
Other development
in the downtown
market and the sub-
urban markets close
to light-rail stations
are in high demand.
Secondary markets like Cherry Creek
and emerging markets such as River
North have seen a significant amount
of new office construction relative to
their size.
One of the drivers for the spec office
development is a “flight to quality”
from tenants. Employers are competing
for educated employees and the office
space they occupy often is a huge sell-
ing point to attract talent.The profes-
sional workforce, which consists of the
millennial generation as well as older
generations, wants more of an experi-
ential work life.They want to live, work
and play in the same areas.That is why
so many new projects have a mixed-
use component or are within close
proximity to amenities to enhance the
work-life balance.
Suburban office developments such
asVillage Center Station I and II and
One Belleview Station are prime exam-
ples of transit-oriented developments
that offer excellent amenities, includ-
ing close proximity to mass transit as
well as being walkable to lots of restau-
rants and entertainment.
On the flip side of the flight-to-
quality trend are tenants who are tired
of continual rent increases year after
year, who are deciding to purchase
their office space rather than lease it.
Purchasing is a great option for busi-
nesses that remain relatively steady
year over year and don’t fluctuate in
size dramatically. Lending institutions
like to make loans on owner-occupied
real estate and offer very competitive
programs for this type of buyer.
Certain segments of the office market
– such as the office mansions in Capitol
Hill and the smaller office buildings in
areas like Littleton, Lakewood, Arvada
and Highlands Ranch – have greatly
benefited from office users looking to
mitigate rising lease rates and take
advantage of the benefit of owner-
ship.These types of buyers tend to be
professional companies such as insur-
ance agents, attorneys and medical
practitioners. Purchasing is not only
beneficial because of the equity cre-
ated through principal reduction and
appreciation, but also because it offers
benefits from depreciating the asset as
well as the tax deduction of the mort-
gage interest. Furthermore, these prop-
erties can serve as profitable passive
investment properties upon retirement.
Many of my clients sell their business
after structuring long-term leases,
while holding onto the real estate as
an income-producing property during
retirement.
Although the office market is thriv-
Eric Shaw
Senior adviser,
Pinnacle Real
Estate Advisors,
Denver
The asking price per square foot for owner-occupied real estate in the Denver metro
market over the past decade, as defined by CoStar.