CREJ - Office Properties Quarterly - April 2015
The official slogan for Denver’s River North Art District should be “Up and Coming.”It seems to be the phrase of choice whenever the burgeoning neighborhood is referred to in almost any context. And why not? It is a perfectly fitting description of the commercial growth going on in the area across virtually all property types. While RiNo is most notable for its profusion of artists, designers, architects, art galleries, studios and other things creative, it does, in fact, have an office presence. It certainly bears no resemblance to the central business district’s sparkling towers or Cherry Creek North’s upscale shops and café. It is not as universally appealing or accessible as Lower Downtown’s brick-andlumber charm. But RiNo doesn’t need any of that, nor would its residents and employers stand for it. The area’s identity was forged decades ago by location and industry. It is nestled just north of downtown Denver, with Interstate 70 and Interstate 25 to its north and west, respectively, Arapahoe Street at its eastern border and Park Avenue North to its south. When connected on a map, those boundaries take on the rough shape of a bowtie, which is what much of the real estate community calls it. RiNo’s history is as uneventful as its location is isolated. Until the resurgence began at the turn of the last century, RiNo was sparsely populated with warehouses, small factories, industrial shops of various types and a smattering of residences. Abandoned rail yards and the Platte River accounted for the balance of the area. It wasn’t until 2000 that Zeppelin Development decided to gamble on what the district could offer by converting a former Yellow Cab central office into the aptly named “Taxi 1.” The 25,000-square-foot brick office building proved to be the cornerstone on which RiNo would expand unabated, save for a brief period during the recession. Today’s office market numbers are no less impressive. Predictably, vacancy reached its peak of 19 percent during midrecession in 2008. Quick to rebound, RiNo showed positive absorption in every year since, as vacancy rates fell by 12.6 percentage points, according to CoStar Group commercial real estate services. Average rental rates ticked up by 22 percent over the same period, which is a clear indication that developers believe in the long-term potential of office space among an admittedly offbeat collection of urban mixed-use properties. And those existing office spaces continue to perform well amidst significant new growth. RiNo’s current office building inventory stands at 863,585 sf in 48 buildings, with 123,000 sf of that being new product, and a net absorption of 119,131 sf. Percentage of vacancy, quarter to date, is 6.4, the lowest since 2011. Average rental rates have stabilized at $28.80 QTD, a 1.8 percent drop from 2014’s year-end mark, which can be traced to 183,000 sf of new product delivered since summer 2014. Lease rates have risen and vacancy rates have fallen steadily since 2008, even with the recession’s lag and nearly 256,000 sf of new space added to the market over that period. RiNo is nothing if not resilient. This is not to say that the district doesn’t have issues. Despite its central location geographically, it is still very much a “destination” area, slightly off the beaten path, although transportation improvements are ongoing, including the expansion of light rail to the area. Income demographics are low – about 49 percent earn less than $50,000 a year – but expect that to change as commercial growth continues to stimulate housing construction. The whole of RiNo is often referred to as gritty, which is what attracted people there in the first place. That industrial lineage won’t be compromised.
Strength of the current fundamentals will continue to spur office space growth on its own, as will the fixed market drivers surrounding the area. RiNo is surrounded by LoDo, the central business district and the National Western Complex. There is still vacant land to be developed there, and a number of existing properties to be rehabilitated. Sustainability is critical to the district. Reuse of materials from within RiNo and other areas of metro Denver lend credibility to the sustainable movement as a whole, cut construction costs and preserve the authenticity of the district’s roots. Rust can be a good thing, and there’s no shortage of it in RiNo. As the nation’s economy strengthens and the metro area continues to stimulate job growth, new office space will find a place in RiNo. It’s already there, and the demand is real. The look and feel of the place might not be for everyone, but suffice it to say, it’s way beyond “up and coming.”