Colorado Real Estate Journal - August 5, 2015
Construction of new office space in the Denver area soared to 3.1 million square feet in the second quarter, but the new supply shouldn’t be cause for concern, according to CBRE. The new buildings will increase Denver’s inventory of office space by 3 percent. A quarter of the space, or 779,785 sf, is preleased, with companies looking to attract employees and maximize their square footage increasingly drawn to new construction. Downtown, where Hines recently broke ground on a 640,000-sf skyscraper, 1144 Fifteenth, will see the bulk of the new office product. “Approximately 60 percent of the new construction, 1.9 million square feet, is occurring in the downtown market, which will increase the office inventory in this submarket by approximately 7 percent. With slightly more than half of the new square footage set to deliver by the third quarter of 2016, we are currently expecting a wash in impact on this first wave of delivery as current activity is projecting 1.02 million square feet of positive absorption during that same time frame,” said CBRE First Vice President Anthony Albanese. “Anytime supply is added to the market, there is a risk of overbuilding. As of right now, Denver’s office market supply is being added in a reasonable and controlled fashion,” he said. According to CBRE’s second-quarter MarketView report, the Denver metro market absorbed 701,662 sf of space in the second quarter, recovering from negative net absorption in the first quarter to achieve year-to-date positive net absorption of 230,779 sf. Direct vacancy is 12.5 percent, near its lowest rate since the fourth quarter of 2008. Downtown had the highest average asking rate for office space, $33.23 per sf full-service gross. Driven by the oil and gas industry’s troubles, available sublease space in the central business district rose to more than 1 million sf in the second quarter, surpassing the previous sublease peak, which occurred in the first quarter of 2010. Some of that space is being backfilled by tenants in financial services, technology and other industries. Albanese said new construction absolutely is needed. “Companies looking to gain or keep a competitive advantage in employment while increasing the efficiency of their square footage use have been drawn to new construction as the product simply offers benefits in both areas with which 30-plus-or– minus-year-old existing product cannot compete. As evidenced by the more than 25 percent preleasing, the product is very much needed as Denver looks to attract and retain high quality jobs. “The 3.1 million square feet of new construction adds approximately 3 percent to the overall Denver inventory. With much of the new construction still a year or more out from delivery, the market will be given some time to absorb the additional product in increments,” he said.