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Downtown Denver Office Absorption Predicted to Continue at Record Pace

September 17, 2018

 

 

Downtown Denver Office Absorption Predicted to Continue at Record Pace

Overall absorption in Denver's downtown office submarket will likely exceed one million square feet every year through 2021, predicts Newmark Knight Frank. This will lead to an even greater shortage of large blocks of Class A office space downtown. Though Denver's downtown office inventory has increased by 13 percent in the last four years, all of it has been absorbed despite record-high rental rates, according to Sam DePizzol, NKF executive managing director. The growth has pushed demand in Class A buildings located in the Skyline and Uptown micromarkets. Per Q2 office statistics, in the company's self-defined Skyline micromarket (between Larimer and Curtis Streets) the median rental rate is $41.39 per square foot, and in Uptown (southeast of Curtis Street) it's $33.85 per square foot. Buildings in the Uptown submarket include 1801 California, the Wells Fargo Center, Denver Place and 1660 Lincoln, while 1144 Fifteenth, Tabor Center, and Seventeenth Street Plaza buildings are considered to be in Skyline. NKF research indicates that the downtown Class A office space has an average leasing asking rate of $40.22 per square foot, with new construction approaching $60 per square foot. "The last time Downtown Denver saw a four-year run of robust absorption, totaling approximately 1 million square feet per year, was in the early 1980s – when the Denver skyline essentially delivered," DePizzol said in a release. NKF does not count absorption until tenants physically occupy their spaces. In the case of Chipotle's relocation, NFK would not have considered its space at 1144 Fifteenth absorbed until the company had actually moved in. That space, floors 20 to 25, is still vacant, following the news of Chipotle's headquarters move to California. From 1980 to 2017, the annual absorption downtown was 322,055 square feet, according NKF data. The last time absorption totaled one million square feet was 2006. The potential for even less availability of big-block space means companies looking at Denver right now will have to act quickly and decisively to meet their needs right now, or wait until additional construction supplies more, DePizzol said. At the beginning of the year, only nine blocks of space 75,000 feet and up were available – and that number will soon be down to five at the most by the end of the year, given current deals in the works, said Tom Lee, an NKF executive managing director. One of those deals is the space that V.F. Corp will take when it relocates to Denver, rumored to be at 1551 Wewatta St. The company indicated it would seek temporary quarters before determining its long-term location. If the outdoor apparel giant takes what could be as much as 150,000 to 200,000 square feet, more companies could resort to "campusing" their offices, Andrew Blaustein, Newmark Knight Frank managing director, told the DBJ after news of their relocation. Campusing is when tenants secure large blocks that may not be contiguous in a building, or may not even be in the same building. "There are more large tenants currently looking downtown than there are large contiguous blocks," Blaustein said at the time. "And so the ripple effect is already happening." Though demand and asking rates are high, Denver's rates are still half of Class A rates in downtown San Francisco, making Denver a viable option for many corporations, Lee said. This is evident in the number of tech firms who have relocated (or opened offices here) from San Francisco, including Strava, Xero, Marketo, Gusto, Thanx, Granicus, SwitchFly, Accelo and OpenTable. The majority of those tech companies, experiencing rapid growth, are locating in Downtown high-rises built in the late '70s and early '80s, as they need more space. Denver is entering the first year of a four-year run that will be "characterized by dwindling vacancy and increasing competition" for blocks of space, Lee said. “Denver’s Downtown submarket conditions will impose both a sense of urgency and clarity on tenants looking at entering or expanding/relocating into Downtown Denver," he added. (Denver Business Journal)

 

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CURRENT

1 MONTH PRIOR

1 YEAR PRIOR

FED TARGET RATE

2.00

2.00

1.25

3 MONTH LIBOR

2.33

2.32

1.32

PRIME RATE

5.00

5.00

4.25

10 YEAR TREASURY

2.99

2.88

2.19

30 YEAR TREASURY

3.13

3.05

2.79