CREJ

Page 2 — Office Properties Quarterly — September 2018 www.crej.com Contents Letter from the Editor T his year ushers in a cyclical high for office space construc- tion, with 3.5 million square feet slated for delivery in 2018, according to Brian Smith’s arti- cle on Page 5. The vast majority of the space is speculative, as developer and investor demand for the metro area remains fierce. Representative of this appetite, of the more than 3 million sf of office space under construction, 90.7 percent is for speculative projects, according to a CBRE second-quarter market report. Earlier this year, the market saw a large block of spec space completed at 1144 Fifteenth, which brought 672,000 sf of Class A office space to the central business district. Down- town Denver’s next large block of spec office space won’t hit the market until December 2020, when Block 162’s 595,000 sf of office space is expected to be completed. This lull between large blocks of new office space in downtown Denver begs the question: Are we building enough? Panelists at the Colorado Real Estate Journal’s office conference Sept. 5 weighed in. They acknowledged that the 2½-year window without any seri- ous relief will put a lot of pressure on large blocks of space downtown. They also touched on the impediments of building downtown, which includes everything from height restrictions to economic barriers and long construc- tion windows. (Some of these chal- lenges are addressed in a question- and-answer with the developer of Block 162 on Page 24.) However, RobertWhittelsey, with Colliers International, said he wasn’t overly concerned about the pressure, because the gap provides some parity and an insurance policy from the mar- ket being overbuilt. He noted that it also provides opportunities for owners of older-generation buildings to invest, because they are not overshadowed by new product. The cover story high- lights several properties that are suc- cessfully doing just that. The combination of restrained new construction and upgraded older prop- erties in downtown Denver is paying off for real estate investors.Year-to- date absorption for office proper- ties was 1.1 million sf in the second quarter, according to Lauren Douglas’ article on Page 8. In 2017, the market absorbed 1.2 million sf over the course of the entire year, she writes. What’s more, the second quarter was the fourth consecutive quarter in metro Denver with record-breaking lease rates. The second-quarter aver- age direct asking lease rate reached an all-time high of $27.66 per sf full- service gross, according to the CBRE report.While the average Class A lease was $31.06 per sf FSG, both Class B and C also saw increases, averaging $26 per sf and $21.80 per sf, respec- tively. With limited large blocks in the pipeline, expect to see more improve- ments to existing buildings as inves- tors get creative.We hear from several investors about their strategies, begin- ning o n Page 12. Michelle Z. Askeland maskeland@crej.com 303-623-1148, Ext.104 Will supply meet demand? 4 5 6 8 9 10 12 13 14 15 16 18 22 24 Maintaining momentum: 2018 economic update Patricia Silverstein Urban core and DTC draw majority of interest Brian C. Smith Denver rises to a top 10 market for tech talent Alex Hammerstein Headquarters activity in Denver remains robust Lauren Douglas Multifamily investors find opportunity in office Corey Sandberg How Treasury rates impact small investments John Becker Research drives activity outside gateway markets Brant G. Glomb and Kyle Turner Investor tip: Are core assets worth the risk? Brian Watson Considerations for purchasing Victorian buildings Elizabeth M. Leder Cost and timing drive hot speculative suite market Katie Winter Co-working: An honest appraisal of today’s market Billy Woodward Worker preferences push co-working into suburbs Chad Johnson Hybrid design combines office and industrial Matt Chaiken Insights into downtown’s Block 162 development Michelle Z. Askeland

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