Market Information

Denver Market Overview

January, 2012

Denver’s office vacancy has decreased for the 6th consecutive quarter and now stands at approximately 13.0%, down from 13.9% at the beginning of 2011.   The amount of vacant sublease space being offered has also continued to decline.  During 4^th quarter 2011, there was notable positive absorption of office space across all qualities of office properties.  Average asking rates for Denver office space now stand at approximately $19.78 per sq. ft. on a full service lease, remaining fairly flat for the last year.  When we break down the rents by class of building we see increase in rents for Class A buildings while class B and C building rents have yet to stabilize.

The common trend we saw in 2011 was the flight to quality, where tenants move up in building quality and keep their rent expense about the same.  Some have even renamed it as the “flight to value”.  Companies have shown they want to provide better work environments for their employees, better access to public transportation, better telecommunications and building infrastructure.  Many tenants moved up to class A quality office properties while they could still take advantage of rates that were only slightly higher than class B quality office properties.  This trend lessened by the end of 2011 as landlords reigned in the free rent and tenant finish concessions that were attracting the tenants to upgrade their quality of space.

Denver’s commercial real estate market will continue in 2012 much like 2011, with incremental improvements in each submarket and quality of property, leading to continued gains in occupancy. The driving force behind the positive absorption is due to an increase in office related jobs and rising tenant demand for additional space, primarily in the energy, education, health care and financial services sectors. Denver has also seen an increase in companies consolidating to the metro Denver area due to Denver International Airport’s central location and Denver’s reputation as a place to do business.  Denver did not overbuild like many other cities and the demand for space should continue to push lease rates up.  Large blocks of space will become increasingly harder to find, prompting larger tenants to pursue build-to-suit opportunities.  As momentum continues to build, we are starting to see new construction speculative office projects such as the redevelopment of Union Station, Opus’ speculative office project in the Northwest market and Hines speculative project in Interlocken. 

While some class A tenants are already experiencing a lease renewal premium to remain in their spaces, Class B and C tenants are likely to see rents remain flat for most of 2012.  As the economy continues its momentum, the improvement of market fundamentals will set the stage for a stronger landlord’s market.  We expect the market to show us a jump in the office lease asking rates in the next 12-24 months.  Tenants should act now to take advantage of what may be the last chance to benefit from these low market lease rates.  The most cost effective way for tenants and buyers to protect themselves and reduce their occupancy costs, is to start early and retain an experienced commercial real estate consultant, even if it is just to renew their current lease.

Read more of our newsletter here  January, 2012