Colorado Real Estate Journal - June 15, 2016
Denver has one of the hottest commercial real estate markets in the country, and there’s still running room across product types. Those were takeaways from the State of Real Estate 2016, Cushman & Wakefield’s May 25 market outlook at the Ritz-Carlton, Denver. “Denver is absolutely a dynamic market. It’s certainly one of the best places to be in the United States today,” said Robert Sammons, C&W northwest regional research leader. Unemployment is at a historic low 2.7 percent, and construction jobs have made up for the loss of jobs in the oil and gas sector, he said. Office rental rates increased 22.6 percent – and vacancy dropped 540 basis points – over the last five years and continued to climb, by 7 percent, over the last 12 months. “There’s more than enough demand to fill the buildings we have in the pipeline,” Todd Wheeler, vice chairman at Cushman & Wakefield in Denver, said of the 2.6 million square feet of office space under construction. Wheeler said he thinks Denver is in the fifth year of a nine-year office market expansion. What the city hasn’t seen is “game-changing” corporate relocations, said Doug Wulf, who moderated a question-and-answer session with C&W Denver brokers. Denver-Boulder today is a major technology hub and, like other technology markets, is likely to run into labor shortages, according to Sammons. He also believes retail and multifamily will be bright spots in the market due to an estimated 50,000 increase in population in each of the next three years. The drum tight industrial market will remain so, he said. Asked in which “inning” they think the various property types are, brokers generally chose the sixth to seventh. An exception was R.C. Myles of the Denver-based Capital Markets group: “I would say eighth, but we’re going to go into extra innings,” he said. Responding to moderator questions about their various product types, Denver brokers made the following observations: • With regard to housing, “There is no affordability here,” said land broker Mike Kboudi, noting the average price of a new home in the Denver area in April was $535,000. The multifamily market is not overbuilt, he said, noting units will continue to be absorbed due to scarcity of condominium product and people’s inability, because of high rents, to save for down payments on homes. • Restaurants continue to pop up in Denver, with “great” locations and infill locations attracting new and chef-driven concepts, according to retail specialist David Fried. Fried said Denver Tech Center West is a great opportunity for new concepts because it’s generally underserved, yet over served by chains. • “That gold rush has definitely come and gone,” C&W industrial broker Kirk Vanino said of the impact on the industrial market from legalized marijuana. With Denver putting a cap on growth of that industry and Commerce City and Aurora outlining “very, very specified” green zones, “It’s not going to drive prices like it did in 2014-2015, which was dramatic,” he said. Cushman & Wakefield Principal Economist Ken McCarthy provided an overview of the global and U.S. economies, noting that, “Millennials are going to continue to dominate what goes on in the U.S. economy for the next several years.” With most in their 20s, “They want to be in an environment where they can have fun,” McCarthy said, adding, “The companies that want to hire them are coming right along with them. That’s why we’re seeing job growth more in urban than in suburban environments, and obviously that has huge implications for real estate,” he said.