CREJ - Office Properties Quarterly - January 2015
The Front Range office market consists of 222.5 million square feet from Trinidad to Fort Collins/Greeley with a respectable overall vacancy rate of 9.9 percent. Overall Front Range vacancy rates have ticked down 120 basis points from a 10.7 percent vacancy rate at the start of 2014. Consider, too, the Front Range has 251 million sf of retail (with a 5.5 percent vacancy rate) and 340 million sf of industrial (with a vacancy rate of 4.7 percent). The overall 813 million sf of commercial real estate on the Front Range is healthy in all sectors with office product making up 27.4 percent of the overall commercial product. Construction cranes are the visible sign the market is healthy and ready for new product. Denver’s central business district market overview includes Lower Downtown and the Platte Valley. The overall CBD consists of 34.8 million sf with a vacancy rate of 10 percent and average full-service rates of $31.87 per sf. Vacancy rates have declined 120 bps from 11.2 percent at the start of 2014, and lease rates have increased $1.17 per sf during the same time period. The LoDo submarket is the strongest submarket in the state. At 8.6 million sf, the current vacancy rate is 6 percent. Average lease rates are $34.58 per sf. Currently four buildings are under construction in LoDo: • 1601 Wewatta, 10 stories – 299,544 rentable sf • 1401 Lawrence St., 21 stories – 311,015 rentable sf • The Triangle Building, 1550 Wewatta, 10 stories – 242,807 rentable sf • The Lab, 2420 17th St., four stories – 78,576 rentable sf The 2015 CBD outlook is positive. All roads, rail lines, pedestrian and bike paths lead to Union Station. The opening of the train line from Union Station to Denver International Airport will be a significant game-changer for the area. The announcement of Whole Foods at 17th and Wewatta streets coupled with the construction of King Soopers at 20th Street and Chestnut Place further enhances, stabilizes and affirms the bullish outlook for downtown Denver. Other proposed office developments include: • Z Block, 1800 Wazee – 235,002 rentable sf • A Block, 1881 16th St., five stories – 58,000 rentable sf • Union Tower West, 1801 Wewatta St., 12 stories – 100,000 rentable sf • Chestnut Building, 16 Chestnut Place, 18 stories – 547,199 rentable sf • 1144 15th St., 38 stories – 640,429 rentable sf Oil and gas companies are a significant driver of the downtown office market. With the recent decrease in the price of oil, it’s conceivable these proposed developments will remain just that through 2015. The southeast suburban office market runs along Interstate 25 from Interstate 225 to Lincoln Avenue and includes the Denver Tech Center, Greenwood Plaza, Panorama, Inverness and Meridian. The market consists of 45.7 million sf and has a vacancy rate of 11.8 percent. The SES market is diverse (telecom, health care, defense industry, engineering and financial industries) and active from small to large tenants. There are a significant number of large tenants (i.e., 70,000 sf or larger) currently in the market that are competing for, and will ultimately lease, the large blocks of available space. New construction includes CoBank Center, an 11-story, 276,000-rentable-sf building scheduled for completion in the fourth quarter. The SES submarket is ripe for speculative development, and potential new office developments include: • Village Center DTC, 10 stories – 300,000 rentable sf • One Belleview Station, 16 stories – 340,000 rentable sf • Village Center Station II, 9 stories – 200,174 rentable sf • The Madden – Palazzo Verdi II, 14 stories – 428,749 rentable sf Northern Colorado, which consists of Fort Collins and Greeley, has 10.7 million sf of office space with a vacancy rate of 5.1 percent, down 70 bps from the 5.8 percent vacancy rate at the start of 2014. The Northern Colorado economy is strong and robust with Weld County adding more than 9,000 nonfarm jobs in the past two years and Larimer County adding 11,000 jobs during the same time period. Weld County experienced a good part of its growth in the food processing and oil and gas sectors while Larimer County’s growth is oriented toward health care, education, professional, scientific and technical industries. The strong economy will bode well for the Northern Colorado office market. Southern Colorado, including Pueblo and Colorado Springs, has 30.9 million sf of office with a vacancy rate of 11.3 percent. While Pueblo’s office vacancy has decreased 210 bps from the start of 2014, Colorado Springs’ vacancy has increased 30 bps. Health care and transportation are primary growth industries in Pueblo with health care, finance and insurance, and technical services driving the Colorado Springs economy. The 2015 office forecast is modest but there is continued demand for office space. The Western Slope has 2.8 million sf of office space from Durango to Craig boasting a modest vacancy rate of 5.3 percent. However, the vacancy rate has increased 140 bps, from a 3.9 percent vacancy rate at the start of 2014. Considering the Western Slope has 22.5 million sf of retail space (with a 4 percent vacancy rate) and 4.7 million sf of industrial (with a 6.6 percent vacancy rate), the overall 32 million sf of Western Slope commercial real estate is healthy. Western Slope office product represents less than 9 percent of the overall commercial market. With no new multitenant office construction planned, the coming year’s outlook is positive. The University of Colorado’s Leeds School of Business released its report on the 2015 Colorado business economy outlook, which predicted a population “increase of 85,000, or 1.6 percent, for 2014; 89,000, or 1.7 percent, for 2015; and 93,000, or 1.7 percent, for 2016.” By 2015, the report forecasts Colorado’s population to reach 5.4 million. The unemployment rate, currently 5.8 percent, is predicted to continue to decrease through the year. With expanding companies, new jobs and an increase in population, the 2015 forecast for the Colorado commercial office sector looks strong.