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Innovative Solutions Continue to Push the Office Market in Denver

Denver was one of the top major metros targeted by commercial real estate investors in 2018. This year is proving to be no different as the third quarter closes out with a flood of office deals. Office investors are being forced to look for deals outside Denver’s urban core. Value-add acquisitions are mainly redevelopments driven by tenant demand for “cool” workspace and talent wars. There is no arguing Denver’s office market is maturing, but there appears to be no threats of an impending plateau or decline.

Whitney Hake, Transwestern

The headlines this year have been dominated by large office lease transactions, including WeWork tying up 220,000 square feet at McGregor Square in LoDo. WeWork has taken a commanding stance with 2 million square feet in Denver and counting. Much of that space is dedicated to enterprise office space solutions and headquarters locations.

This year has also marked the notable expansion of coworking outside of Denver’s urban core into Midtown, Cherry Creek and Southeast Denver. Occupancy levels within WeWork locations historically ebb and flow with direct vacancy rates per submarket performance. For example, WeWork at Civic Center Plaza in Upper Downtown Denver has been slow to fill with memberships and term. A WeWork desk near Union Station is double the cost of a desk near Civic Center Park and the State Capitol building. Other coworking operators in Denver, including Industrious, CTRL Collective, Serendipity Labs and FIRMSPACE, are actively trying to position themselves as a steady and predictable alternative for tenants, landlords and investors.

Billy Woodward, Transwestern

Every surface lot near Union Station was claimed five years ago. Commercial projects began popping up only to be quickly absorbed by relocating Millennials and companies like Deloitte, Facebook, Apple and Liberty Global. The same development momentum has now shifted to Brighton Boulevard and 38th Street in the RiNo neighborhood. The profile of investors and developers in RiNo has changed drastically since 2014, validating the once-disregarded submarket. Now, institutional players have rolled into RiNo, including Ivanhoe Cambridge/Hines, Goldman Sachs/Golub/Formative and Clarion Partners/Q Factor, to name a few. RiNo is officially in the rotation of tenants in the market that are also exploring LoDo, LoHi and the CBD. Developers have dubbed RiNo a favorable submarket for speculative construction because employers want an opportunity to steer place creation for their workforce. Before year-end, Beacon Capital Partners will sell the HUB South for about $182 million, marking another endorsement for the RiNo submarket.

Meanwhile, inside of Denver’s urban core, real estate taxes and operating expenses are averaging $16 to $20 per square foot. This is an all-time high, pushing investor demand outside the urban core. For example, BMC Investments and Bow River Capital sold Financial House, a 73,000-square-foot, Class AA office building in Cherry Creek North to EverWest for a record high of $750 per square foot this past August. That same month, the Denver Post’s former 41-acre printing and distribution facility known as Fox North was sold to a partnership between Pure Development and Interland. The partnership specializes in corporate headquarters development.

Southeast Denver, which saw several notable sales close this year, is also seeing a new wave of development, mainly near Belleview Station and Fiddler’s Green Amphitheatre. Planned office developments range in size from 300,000 square feet to 1 million square feet. Similarly, large-scale projects are planned in lesser-established office destinations like Broadway and I-25 (Broadway Station) and I-70 and I-25 (Sunnyside/Fox North).

Tenant demand for coastal interiors, such as open ceilings, polished concrete floors and specialty lighting, has fueled some adaptive reuse projects. This includes Sheplers, a Western wear and cowboy boots store that sold to Sidford Capital this past July. The new owner is exploring options for office space and a food hall as the lines between office, production and retail spaces become increasingly blurred.

While everyone is wondering when this cycle will end, the Denver market shows resilience. Leasing activity continues steadily in downtown and is moving beyond the Central Business District to neighboring submarkets. These areas, in turn, are seeing increased new development and investment sales. Investors and developers continue to search for creative solutions to keep up with ever-increasing demand, making an exciting future for the Denver real estate market. 

Southeast Denver, which saw several notable sales close this year, is also seeing a new wave of development, mainly near Belleview Station and Fiddler’s Green Amphitheatre. Planned office developments range in size from 300,000 square feet to 1 million square feet. Similarly, large-scale projects are planned in lesser-established office destinations like Broadway and I-25 (Broadway Station) and I-70 and I-25 (Sunnyside/Fox North).

Tenant demand for coastal interiors, such as open ceilings, polished concrete floors and specialty lighting, has fueled some adaptive reuse projects. This includes Sheplers, a Western wear and cowboy boots store that sold to Sidford Capital this past July. The new owner is exploring options for office space and a food hall as the lines between office, production and retail spaces become increasingly blurred.

While everyone is wondering when this cycle will end, the Denver market shows resilience. Leasing activity continues steadily in downtown and is moving beyond the Central Business District to neighboring submarkets. These areas, in turn, are seeing increased new development and investment sales. Investors and developers continue to search for creative solutions to keep up with ever-increasing demand, making an exciting future for the Denver real estate market.

— By Whitney Hake, senior vice president, Transwestern; and Billy Woodward, vice president, Transwestern. This article first appeared in the October 2019 issue of Western Real Estate Business magazine. 

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