CREJ

Page 4 — Office Properties Quarterly — December 2019 www.crej.com Market Update A team that inspires confidence. ™ (303) 657-9700 BrinkmannConstructors.com D enver clearly has been established as one of the hottest markets in the nation, evidenced by several large corporate occupiers making a claim by way of expan- sions and relocations. The metro’s strong fundamentals have caught the eye of large corporate occupiers, but could Denver begin to experience growing pains heading into the new year if the construction pipeline con- tinues to decrease and large blocks of available space remain limited? The Denver metro saw more than 40 major expansions and relocations in 2019. Most notably, Denver has welcomed firms including VF Corp. (the parent company of clothing lines North Face, Jansport and Smartwool), Slack, Amazon, Whiting Petroleum and Quizlet, all of which have made an investment in the metro by sign- ing major leases or opening regional and global headquarters. Driven by an extended expansionary run, it seems the market is not cool- ing down anytime soon. The proof is in the fundamentals: Downtown absorption leads the metro after posting positive metrics for 12 con- secutive quarters. Investment volume remains strong in 2019 after record numbers in 2018. Denver continues to ride a two-year trend of declining unemployment rates after recording its lowest unemployment rate of 2.2% since the 2008 recession. Vacancy in the central business district remains at frictionally low levels. The Denver economy consistently has been among the nation’s top economies for a multitude of reasons. The local population has benefited from a 1.5% growth rate since 2017, and downtown specifi- cally has outpaced the greater metro region, bolstered by a 4.2% population growth rate in 2019. The local economy continues to ben- efit from a talented employment base, aided by multiple nationally accred- ited universities within a short commute from the city. Combine all these factors with the pure attraction that Denver holds to migrating millennials in search of a higher quality of life, and Denver has all the ingredients for success. The technology industry has been particularly prosperous, experiencing 103% employment growth since 2010, a nearly 14% year-over-year growth rate, according to the Downtown Denver Partnership. Denver’s recent growth stint has not gone unnoticed. Local developers and nationally renowned investors have taken a keen interest in the market. Nearly $3 billion in sales were recorded across the metropolitan area during the past 12 months, with nearly 10% of that coming from international investors. With all this progress, some are beginning to wonder when the train will finally hit the brakes and return to the station. The metro’s construc- tion pipeline currently sits at 3.2 mil- lion square feet, the lowest volume that the pipeline has seen in the past five years. While preleasing activity remains relatively slow compared to historical levels, hesitancy among developers poses the biggest threat to Denver’s ability to continue to attract big-name corporate occupiers and large companies. Of current office product down- town, there are only 15 available spaces of at least 50,000 sf, and a mere seven options of 100,000 sf. Denver’s sheer lack of volume of large-block availability does not bode well for economic development as the metro looks to remain competi- tive with similar markets. Seattle, with a market size of 76.6 million sf, currently has 23 blocks of 50,000 sf in its downtown corridor. Minneapo- lis, at 82.3 million sf, has 24 blocks of 50,000 sf available downtown. Of Denver’s 3.2 million sf of office prod- uct currently under construction, only 640,000 sf of that is located in the urban core, a key market of inter- est for many of the new entrants. Denver’s construction pipeline is by no means lacking volume given the size of the market, but for the metro to continue to attract large office tenants at the rapid pace that it has experienced previously, the pipeline needs a large addition. While Denver’s construction volume is trending down, there still are plenty of opportunities for success- ful development. In the present cycle, Denver has seen an impressive revival of previ- ous stagnant markets like the River North Arts District, where over 3.1 million sf of Class A office space has been developed. Another example, Positioning Denver to maintain corporate attraction Robert Knisely Managing director and market leader, Transwestern A rendering of Schnitzer West’s The Current, in River North, which will feature 235,000 square feet of office space. Please see Knisely, Page 19