Denver’s Dynamic Office Market Changes Face of Downtown
Denver’s office market has been riding a wave of expansion, entering its ninth straight year of growth, with net absorption totaling 186,826 square feet in the first quarter of 2018.
While vacancy ticked up — ending at 15.9 percent, up from 15.1 percent in the prior quarter and from 14.6 percent one year ago — it is expected to fall over the next several quarters as tenants continue to absorb space in both new and existing buildings.
The Denver office market’s impressive expansion has lasted 33 consecutive quarters, resulting in a total of 9.7 million square feet of absorption, 7.4 million square feet of new deliveries and a 409-basis-point plunge in vacancy.
The majority of the 9.7 million square feet absorbed between the first quarter of 2010 and the first quarter of 2018 occurred in three key submarkets. This included the Southeast Suburban (SES), Downtown and Northwest (NW) markets, which recorded 3.3 million, 2.9 million and 1.3 million square feet of absorption, respectively.
The Downtown market ended the quarter with absorption of 214,317 square feet, and Class A median asking rates were up 39.5 percent from year-end 2009 to $39.76 per square foot. Asking rates in some of the newest super premium buildings have breached $50 per square foot, a level unprecedented in Denver.
Activity in the Lower Downtown/Central Platte Valley (LoDo/CPV) micromarket, which has been riding its own development boom centered around the redevelopment of Union Station, is now slowing down. After eight years of positive absorption totaling a little less than 2.3 million square feet, absorption in the first quarter of this year was flat, at a negative 29,990 square feet. Big blocks and scalable tenant options for larger users are scarce in LoDo. This is consequently moving Downtown activity to the Uptown and Skyline micromarkets.
Skyline logged strong activity in 2017, with annual absorption of 163,000 square feet, followed by absorption of 103,000 square feet in the first quarter of 2018 alone. Recent deliveries are leasing up quickly, attracting anchor and mid-size tenants from trendy LoDo.
An asset at 1401 Lawrence reached full occupancy in the second quarter of 2017, just nine months after its commissioning. A building at 1144 15th Street was just delivered 84 percent pre-leased, with key tenants Chipotle and Gates moving to the office tower later this year.
Uptown’s positive first quarter absorption of 137,000 square feet follows three years of stagnant growth. This micromarket is on the cusp of a resurgence, with tenant activity extending beyond traditional tenants to technology firms, creative uses and coworking providers looking for scalable options not found in LoDo.
The vitality of the Denver office market has attracted corporate expansions, a new, diverse tenant base and new ownership, such as Dallas-based Ramrock Real Estate, the recent buyer of One Belleview Station.
Denver’s momentum will continue through 2018 with moderate rental rate increases, transit-oriented developments in high demand by both employers and employees and a continued appetite for scarce new product. Downtown’s traditional core offers large blocks, scalability and value, continued growth in the technology sector and rebounding oil and gas firms all fueled by population gains and job creation.
— By Jeff Castleton, executive managing director, Newmark Knight Frank. This issue first appeared in the May 2018 issue of Western Real Estate Business magazine.