CREJ

Page 4 — Office & Industrial Quarterly — December 2021 www.crej.com OFFICE — MARKET UPDATE Thank You CARR Naum Nasif CBRE Andrew Swetnam Nicholas Weld Melanie Davis Will Hightower Ryan Link Harrison Archer Sergio Castañeda Casey Grosscope Blake Holcomb Brian Hutt Lee Diamond Tim Richey Chad Flynn Charley Will Jenny Knowlton Brad Lyons Matt Henrichs COLLIERS INTERNATIONAL Matt Ball GENESEE COMMERCIAL GROUP Jamie Macbeth Will Netwal GIBBONS WHITE Lynda Gibbons Jaime Pletcher IMPACT REAL ESTATE SOLUTIONS Steve Conrad JONES LANG LASALLE Janessa Biller Tim Bourdelais Ken Gooden Andy Ross John Beason Victoria Blackstock KENTWOOD COMMERCIAL Matthew Anton MADISON COMMERCIAL PROPERTIES Todd Brown MARCUS &MILLICHAP Brandon Kramer Jacob Rocker NAI SHAMES MAKOVSKY Peter Knisely NEWMARK John Jugl, Jr. RARE SPACE INC. Tom Grotewold REBACK REALTY INC. Howard Reback SAVILLS Kirsty Cameron SRS REAL ESTATE PARTNERS Tony Pierangeli Tami Lord TOWER REALTY PARTNERS Brent Ellis Megan Maxwell As the year comes to a close we reflect on how fortunate we are with the success of our business, our team and those that make it possible. We would like to thank our outstanding brokerage community for partnering with us to fill our buildings and the following individuals who helped us in 2021: With your help, we will continue to be fully invested in the future. CORE COMMERCIAL COMPANY Mike Helwege Parker Curry CROSBIE REAL ESTATE GROUP Scott Steputis CUSHMAN &WAKEFIELD Dan Beer Nate Bradley Katy Cleveland Zach Williams Ryan Stout Jon Hendrickson Aaron Johnson DENVER WEST John Wickliff DEPAUL REAL ESTATE Jarod Pate Matthew Watson Paul DeCrescentis FULLER REAL ESTATE Jason Russ M etro Denver’s commer- cial real estate market is showing signs of a “return to normal” following sever- al quarters of uncertainty fueled by the ongoing effects of the COVID-19 pandemic. From initial lockdowns to ever-evolving health protocols to changes in workplace demands, companies have had to navigate what are likely some of the hardest years of their existence. And the office market has felt it. There’s no question that there still are challenges to overcome as the marketplace tries to right itself after an unprecedented shock, but a few glimmers of hope for the office mar- ket became clear in the third quar- ter, including positive net absorp- tion, economic growth and investor activity, and lease rates stabilization. n Positive net absorption. One of the most encouraging statistics from this past quarter was the posi- tive net absorption of office space. Marking the first time this figure has ventured into positive territory since the beginning of 2020, the office market experienced positive net absorption of nearly 240,000 square feet, including both direct leasing and subleasing. This figure shows a shift back to what leasing activity looked like in the Denver office market in the years leading up to the pandemic, bolstered by fewer companies relin- quishing their office space. In total, companies leased more than 2.3 million sf of office space in metro Denver in the third quarter, an increase of 43% over the third quar- ter of 2020, when leasing activity was still largely sti- fled by COVID-19. n Economic growth. Economic activity also has increased in the Denver metro area with the prolifera- tion of COVID-19 vaccines. As res- taurants, bars, hotels and enter- tainment spaces are hitting their full stride again, more and more offices are resuming in-person oper- ations or adopting hybrid models that allow maximum flexibility for employees who have become accus- tomed to working from home. As Denver continues to attract employers and employees, local, national and international inves- tor interest continues to increase in the Mile High City. Total building sales totaled more than $1.7 billion across the metro area. Among major transactions, the sale of the VF Corp. headquarters building (formerly the Gates building) set a new record for downtown Denver at $800 per sf. The volume of activity bodes well for the future of the office market locally, after more than a year when office spaces across the metro area were largely left vacant. n Lease rates. While there are multiple signs of improvement, the market still looks very differ- ent than it did in 2019. Before the pandemic, the metro Denver office market was arguably the strongest it had ever been, with average rents approaching $30 per sf, a large amount of new office product under construction and vacancy rates holding steady at sub-10%, even with new buildings coming on line. Now, the total vacancy rate is 14.3%, up 4.4% from its pre-pandem- ic position. The amount of space under construction has been cut in half, although a big reason for that is the delivery earlier this year of major office buildings like Block 162, which added more than 600,000 sf of office space to the downtown market. Historically, buildings like that don’t come around in Denver very often, so it’s not surprising. Many companies placed their space on the sublease market throughout 2020, with the total vacant sublet space more than dou- bling over the course of the year to 2.4 million sf. Today, there is more than 3 million sf of vacant office space available for sublease. While direct gross office rents have held steady on average, ticking up by almost $1 to $29.60 per sf year over year, rents for sublease space reflect the glut of space that hit the market during the pandemic, drop- ping more than $2 to $24.08 per sf on a gross basis. Even with these shifts, the metro Denver office market still is largely a tenant’s market, although some submarkets are more favorable than others and tenants continue to be challenged with extended permit times, rising construction costs and supply chain issues. Right now, many owners are open to negotiat- ing various concessions like tenant improvement dollars, shorter lease terms or discounted rental rates. As the office market continues to strengthen, these types of conces- sions will not be as readily avail- able, but there will continue to be opportunities for companies to grow within the Mile High City. And that will be a welcome sign for all. s andy@tributaryre.com Denver office market shows signs of growth again Andy Cullen Partner and managing broker, Tributary Real Estate Third-quarter statistics for the Denver metro area office market