OIQ_091521

Page 10 — Office & Industrial Quarterly — September 2021 www.crej.com OFFICE — LENDING • We Work Hard. We Find Solutions. We Deliver Results. For Photos & More Details On These & Other Available Properties, Visit Us at: www.JohnProppCommercial.com – 303.692.1816 Safeway Center Anchored Center 1515 - 1595 E. Bridge St., Brighton • 1,033 square feet - #1569 • $20.00 / square foot NNN • Private office, restroom, storage, open area • Located on Brighton’s main thoroughfare. Retail Center on Parker Road 18721-18741 E. Ponderosa Dr., Parker • 2,010 & 2,410 sq. foot in-line spaces • $17.00 /square foot NNN • Turnkey dental suite. Monument sign. • Join Tuesday Morning, Papa Murphy’s, Hair Junkyz and more Investment or Redevelopment Sale 1807 S. Pearl Street, Denver • $1,300,000; Building - 2,267 square feet • Site - 6,250 square feet • Over 100 restaurants and businesses on Historic South Pearl shopping district • Currently used as professional offices Flex/Warehouse and Second Floor Office 8122 Southpark Lane, Littleton • 3,011 square foot, flex space; drive in doors and high ceilings; cooled and heated. Adjacent 2,110 sf storage space only. • $14.00 / square foot NNN • 1,936 square foot office space • $11.00 / square foot NNN Land for Sale on Federal Boulevard 55 th & Federal Boulevard, Denver • $440,000; +/- .70 acres • Shared Entrance and Egress w/ Advanced Auto Parts • C-5 Zoning/PUD • 34,000 vehicles per day at 56 th Avenue • Join • • SELECT FOR SALE L ISTINGS Highly Visible Retail Center 10015 E. Hampden Avenue • 2,438 square foot in-line space • $15.00 / square foot NNN • Located at a signalized intersection. • Join nail salon, tropical fish store, liquor store, restaurants, Wave Laundry and more. SELECT FOR LEASE L ISTINGS Commercial Real Estate Sales, Investing, Managing & Leasing A fter enduring five consecu- tive quarters with growing vacancy in the metro Den- ver office market, things appeared to level off some- what in the second quarter. Asking lease rates have stabilized, as have the increases in vacancy seen in late 2020/early 2021. Much of the second-quarter new vacancy is due to new Class A product delivering. Sale transaction volume picked up in the second quarter, mainly in the suburban markets as there still is a big question as to what will happen with the central business district going forward. Lenders are as active as they’ve ever been in commercial real estate this year, but, at the same time, office build- ings are met with more scrutiny than they have been in the past. Lenders are zeroing in on tenants’ likelihood of renewing after their current terms, the current actual physical occupancy levels of their employees and what’s specifically happening in the submarket. Rates have remained historically low throughout the year, and the avail- ability of capital has made more debt financing for office buildings possible than would have been otherwise. Denver’s economy has rebounded well from the pan- demic, and it seems few compa- nies are completely switching to remote work, indicating things will improve from here. Now that employees are return- ing to offices, combined with school being back in-person for most students, it seems that at least physical occu- pancy in offices is starting to normal- ize to what it will look like going for- ward. This seems to vary based on different busi- ness sectors. For example, the pro- fessional service industry seems to be coming back to the office more than tech, which has adopted remote work to a larger extent. Anecdotally, this seems evident in what I see every day in our build- ing in the CBD. The majority of our employees are regularly back in the office, but the other tenants (many of which are in the tech business) seem to be at 10%-15% physical occupancy even now. Lenders are extremely focused on what that actually looks like in any specific deal, as it is an indicator of which tenants are likely to renew or potentially look to downsize at the end of their current lease terms. We have noticed with the office buildings we have financed recently that the smaller-tenant- oriented buildings seem to have larger physical occupancy than larger buildings, likely due in part to these companies not having the same resources to set up a robust work-from-home system. It is posi- tive, however, that many compa- nies and individuals continue to move to Denver, as many certainly will prefer an in-person office set- ting. Lease signing activity improved in the second quarter. With the vaccine rollout, companies that are expanding or had given up space began to actively explore options. Vacancy across the metro area did increase from the first quarter, mainly as a result of very little leasing activity in the prior 12 months combined with major new Class A office deliveries pri- marily in the CBD. Very few new office buildings are in the devel- opment pipeline at the moment, with less than 250,000 square feet scheduled to deliver per year in 2022 and 2023, which also should help normalize vacancy going for- ward. The 12 months leading up to the second quarter saw a climb in vacancy greater than anything in the past 12 years, with direct vacancy approaching the 18%-19% levels last seen in 2009. Surpris- ingly, however, asking lease rates do not seem to have dipped overall. In some submarkets more conces- sions are being offered, but so far asking rents have not taken the dive we might have expected. It has been encouraging to see sale activity pick up during second quarter, although much of this has taken place in the suburban markets where the future of office needs seem more certain. Vacancy is perceived to have hit bottom in most suburban markets, especially in the southeast. As a result, lend- ers are much more willing to lend the suburban markets than down- town, although they are being very careful, and leverage from nonre- course sources of capital typically is less than 60% at the moment. There also seems to be more capi- tal chasing debt deals than at any time since the Great Recession, so lenders are incentivized to really look hard at office deals that make sense in order to pursue more yield than they can get typically with multifamily or industrial deals. Much of the direct and sublease space available is in Class A build- ings, which should be quick to gain ground as companies are actively looking for space. Lenders general- ly are bullish on Denver as a place that will continue to attract out- of-town companies and residents, which makes them more willing to situationally look at office deals with strong characteristics. With the metro Denver office market appearing to have hit bottom over the past few months, lenders are more open to considering local office deals. With the vaccine roll- out well underway, many folks back to work and extremely little office product scheduled to hit the market over the next two years, it seems like we’ve finally turned the corner and the overall Denver office market as well as available financing will only improve from here. s mjeffries@northmarq.com State of office financing: Denver 2021 midyear Mark Jeffries Vice president, NorthMarq