Colorado Real Estate Journal - February 4, 2015
The drop in oil prices has some folks in Denver’s office market feeling a little edgy, but the market isn’t likely to take a hit unless low prices extend for a long period of time. CBRE Managing Director Tim Swan, addressing the issue at NAIOP Colorado’s annual economic forecast in Denver Jan. 13, said energy companies will continue to operate at 2014 levels this year, doing everything they can to keep employees, “especially those who occupy office space.” “Overall, unless this is truly a prolonged period of depressed pricing for oil, we’re going to see stable occupancy in Denver,” said Swan. Energy companies occupy about 20 percent of the office space downtown, compared with 58 percent to 60 percent in Houston, and only 5 percent of the office space in metro Denver. “Relative to oil, the good news is that, unlike Houston, we’re a diversified economy,” said Swan, noting energy was third in leasing activity over the last two years, trailing the technology and financial services sectors. Swan, along with panelists Dr. Glenn Mueller, professor at the University of Denver’s Franklin L. Burns School of Real Estate and Construction Management, and Dr. Steven Laposa, senior adviser at Alvarez and Marsal Real Estate Advisory Services, provided a predominantly positive forecast for Denver’s commercial real estate market. In terms of occupancies, “Denver sits at or above the national average in all the property types and is doing very well,” said Mueller, who added that pricing for all types of commercial real estate has reached 111 percent of its previous peak, making Denver the best market in the country from that standpoint. Hotel occupancy averaged 81 percent last year, compared with 64 percent nationwide. “Industrial has been doing amazingly well over the past year,” in part because of the “pot effect,” but also because of population and employment growth, Mueller said. According to Laposa, Denver’s industrial market is likely to see stable expansion through at least 2018. If there is a downside, it is in the multifamily market. Mueller believes multifamily has peaked, and with new supply coming on line in Denver, rental rate growth is likely to slow. Laposa called multifamily’s position in the real estate cycle “confusing,” but believes contraction is likely through 2020. The office market, he said, will continue to expand, peaking in 2016, while retail real estate should show small, tenuous expansion through 2017 and moderate to equilibrium through 2020. According to Swan, commercial real estate’s underlying fundamentals will continue to improve in 2015, and market sentiment will remain positive. But with abundant capital in the market, sustainable growth will rely on underwriting discipline, he said. Laposa urged people to be cautious as they move through this cycle as, “The seeds of the next bubble are sometimes planted during recovery periods.”