CREJ

Page 4 — Office & Industrial Quarterly — March 2022 www.crej.com OFFICE — MARKET UPDATE A s two tumultuous years closed for the office sector, millions of workers remain in remote or mostly remote setups after multiple false starts, with return to office plans upended by new variants and case surges. Specifically, the second year of the pandemic ended with the national office vacancy rate at 15.5% – a 130-basis-point increase over December 2020 figures – and Denver was no exception. n Denver price growth acceleration remains steady, becomes fifth highest nationally. The Denver office sector closed 2021 with a 16.3% vacancy rate, the 15th-lowest among the country’s top 50 markets, following a 200-basis-point increase over late 2020 figures, when it had the 13th- lowest vacancy rate nationally. Even so, Denver’s vacancy rate closed the year surpassing Washington, D.C. (16.5%), Chicago (18.8%) and Houston (24.3%). At the same time, Denver office space underwent a noticeable price increase, logging the sixth-highest appreciation at 6.7% year over year to reach $30.75 per square foot. This price acceleration outpaced even that of major markets like Los Angeles (6%) andWashington, D.C. (1.4%), where prices trend above $40 per sf. Even when looking at markets with similar price trends to Denver’s $30.75 per sf, the price trends in Colorado’s top office market also sur- passed Houston’s 2.5% ($30.27) and Chicago’s 0.9% ($28.19) gains. The new year kicked off with a 15.7% vacancy rate at the national level, up 200 basis points over late 2021 and 110 basis points over Janu- ary 2021. Denver’s office market showed a 200-basis- point increase over year-ago figures, but its 16.3% vacan- cy rate remained steady from late 2021. At the same time, Denver logged a $30.25 per-sf price in January for a 5.5% year-over-year hike. As such, Denver office claimed the fifth-sharpest rate of price appre- ciation nationally, outpaced only by Miami (+5.8%), Tampa (+6.2%), the Bay Area (+6.2%) and Los Angeles (+8.1%). n 2021 closes nearly $2.64 billion in office sales, January totals fourth high- est in U.S. In the top 50 U.S. markets, the average sales price for office spaces reached $293 per sf at the end of last year, while the national sales volume came in at $77.5 billion. Of that, Denver represented $2.64 bil- lion in office sales – the 10th-largest sales volume, surpassing markets such as San Diego ($1.87 billion) and Nashville, Tennessee ($695 million). This was even despite the fact that Denver entered the new year with office rents at $237 per sf, compared with San Diego’s $455 and Nashville’s $259. Sales activity was strong in the Denver office market, closing a total of $301 million in transactions – the fourth-highest volume nationally. The strong start was achieved with a $499 per-sf average, significantly lower than San Francisco’s $1,073 per-sf pricing, which totaled only $289 million in sales. By comparison, the national average sales price for office assets was $288 per sf, for a nearly $5.88 billion sales volume. Notably, pandemic national office sales prices (like many other metrics) showed trends unlike those observed during the Great Recession of 2008. Sales prices in urban and central business district office markets evolved on similar trajectories, where- as pandemic-era sales prices for urban office space jumped 28% since late 2019 to reach $233 per sf. With 2021 closed, CBD offices are trading at $323 per sf – 19% lower than in 2019 and the lowest figure in eight years. n Denver to add 1.26 mil- lion square feet of new office space. The national pipeline of under-con- struction office spaces remained mostly in line with pre-pandemic trends, totaling nearly 157 million sf in December 2021. Most of this development was concentrat- ed in urban submarkets (48.6%), with 30.3% in suburban areas and 21.1% in CBDs. That year-end snapshot was rein- forced by the start of 2022, with 2022’s earliest figures showing that half of under-construction office space is now in urban markets, while suburban markets account for 31% and CBD spaces for 19% of under- construction inventory. While stock that is already under construction is in line with pre-pandemic trends, the How Denver’s market measures up nationally Eliza Theiss Senior writer, CommercialEdge National sales activity, as of December 2021 Please see Theiss, Page 16