Colorado Real Estate News

Denver Metro Office Market Stats Q2 2021

DOWNTOWN DENVER

CBD – Central Business District

Summary

Denver’s CBD has been significantly impacted by the coronavirus pandemic and subsequent hybrid work models. Leasing activity fell dramatically at the onset of the pandemic as tenants held off on making long-term lease decisions in the uncertain environment. This wait-and-see approach persisted through the remainder of 2020 and into 2021. With weaker demand, vacancy is up to 22.5%. In addition to direct space hitting the market, sublet availabilities are also posing a challenge to the CBD. Available sublease space in the CBD has doubled in the past year to 1.6 million SF. While office fundamentals in 2020 softened, investors demonstrated long-term confidence in the downtown market with a handful of trophy assets that traded. Annual sales activity totaled nearly $862 million in 2020, up from $564 million in 2019. Denver’s Central Business District is the metro’s financial hub and includes the headquarters of many of its larger companies. The submarket is served by several light-rail stops in the Regional Transit District (RTD) system and is positioned to benefit from the FasTracks extension that has increased access to the Southeast, DIA, and East Denver submarkets. 

LoDo – Lower Downtown

Summary

LoDo is Denver’s oldest neighborhood and a premier live/work/play destination. Before the pandemic, demand in this slice of the market was driven by employers utilizing highly amenitized workspaces to attract top talent in a competitive labor market. Foot traffic in the area decreased significantly at the onset of the pandemic, but is beginning to improve as people return to the office.

The effects of the coronavirus became immediately apparent in LoDo’s office market fundamentals. Vacancy quickly increased as a number of tenants placed space on the sublease market or backed out of lease deals that were in the works. Absorption turned negative, and a lack of leasing activity throughout 2020 and into 2021 indicates that these space losses won’t be recovered anytime soon. Rent growth has declined since March of last year, and CoStar’s forecasting model indicates that rents are projected to contract until mid-2023.

While this may sound like a gloomy scenario, some tenants are taking advantage of the current economic conditions to lease office space at a discounted rate. LoDo’s tenant base remains well-diversified, with a heavy flow to tech, investment, law, and even medical service tenants taking space in recent deliveries.  

Investors have made big splashes when opportunities present themselves, but trades have varied widely in any given year.

Platte River/RiNo (River North)

Summary

Denver has experienced incredible growth in the past decade, and no place is this boom more evident than in Platte River. The submarket encompasses Denver’s fastest-growing neighborhoods, including Union Station and RiNo, where extensive revitalization has been ongoing.

With opportunities for large-scale development few and far between in the neighboring LoDo Submarket, development accelerated to staggering levels in Platte River in recent years. The supply wave began radically altering the landscape of the submarket. Another 530,000 SF is currently in the pipeline.

With much of the recent development speculative, the vacancy rate has fluctuated significantly. Ongoing supply pressure, coupled with tempered office demand in the wake of the pandemic, contributed to vacancies above the submarket’s long-term average recently.

Demand for new construction was nothing short of impressive in past years. Additionally, rents were recently growing at their strongest rate in several quarters, following a multi-year stretch of pronounced underperformance against the metro. Platte River has managed to maintain positive net absorption in the last 12 months, when most other submarkets across the Denver market have reported space losses amid the ongoing pandemic. These trends speak to sustained demand from tech tenants, a key sector in the Platte River Submarket.

CENTRAL DENVER

Cherry Creek

Summary

Cherry Creek is one of the most popular neighborhoods in Denver. The area offers a live/work/play environment and has become synonymous with fine dining and high-end shopping. The COVID-19 outbreak momentarily dampened the appeal of these attractions, but the successful roll-out of the vaccine has resulted in improving office fundamentals midway through 2021.

Prior to the outbreak, office demand was consistently outpacing the pace of development, particularly on the high-end of the spectrum. Vacancies in 4 & 5 Star product compressed by more than 500 basis points in 2019. These outsized figures offset rising vacancies in 1 & 2 and 3 Star properties.

After years of healthy rent hikes, rent growth slowed throughout 2020 as the pandemic weighed on office fundamentals. As of 21Q3, annual rents contracted by -0.7%. 

Only a handful of office buildings exceed 100,000 SF, most of which was built in prior cycles. The submarket is near full build-out, limiting development opportunities to smaller infill projects (relative to construction in nearby downtown).

Glendale

Summary

The Glendale Submarket has traditionally served as an affordable option to the nearby Cherry Creek Submarket, which is one of the most desirable and expensive locations in the Denver market. But recent mixed-use development in Glendale has transformed nodes throughout the submarket into live/work/play hotspots in their own right. Boulevard One has turned the former Lowry Air Force Base into a community with housing, retail, restaurants, and office space, while 9th & Colorado features a walkable mixed-use development on a site that was once Colorado’s Health Sciences Center campus.

More development is on the way, which will continue to transform this once sleepy area of Denver. After years of setbacks, Glendale 180 finally got the green light. This $150 million entertainment district at Virginia Ave. and Cherry Creek Blvd. will feature a music concert venue, movie theater, restaurants, and a hotel, and is scheduled to break ground this fall. While office space will likely not be part of the district, it represents an evolution of Glendale that will aid in attracting prospective tenants to the area.

New developments in Glendale are adding vibrancy to the submarket, but they’re also raising the vacancy rate. Vacancy hovered around 8% from 2014-2019 but has doubled to 15.6% in just the last 2 years. Vacancy is especially high in the newer 4-5 Star rated properties. The impact this is having on rent growth is clear. Year-over-year rent growth is down -1.7% as of 21Q2 and will likely continue to contract over the next four quarters.

Colorado Boulevard/I-25

Summary

Adjacent to Cherry Creek and located within close proximity to downtown Denver, Colorado Blvd/I-25 is a more mature submarket that offers rent savings compared with the metro average. More than 75% of the inventory is located within one mile of a light rail station (generally the Colorado Station stop), which now grants more access than ever thanks to a major ongoing expansion to Denver’s light rail network elsewhere in the metro. 

The Colorado Blvd/I-25 Submarket offers a discount on rents relative to the Denver average. While rent growth has cooled following the onset of the pandemic, the submarket’s relative affordability helped to prevent the steep losses that were recorded in Denver’s expensive urban core. Demand remains tempered for office product, and rents are not projected to recover until at least 2023.

The submarket overwhelmingly attracts tenants in the professional business services or financial sectors, which combined represent more than 80% of the submarket’s occupied space. Metro wide, these two sectors are responsible for just over 60% of occupied space.   

SOUTH DENVER METRO

DTC – Denver Tech Center

Summary

The Denver Tech Center (DTC) is one of the metro’s primary employment clusters. The submarket has evolved into a sprawling urban node with a diverse mixture of tenants, but it still remains a hub for technology companies, particularly those that specialize in telecommunications. DTC has three light rail stops located within the submarket, making it a prime location for transit-oriented development. Because of the new mass transit options, the submarket has transformed in the past decade from a commuter office park to a vibrant mixed-use development. Leasing activity and speculative development have largely been put on hold due to the coronavirus pandemic. However, build-to-suit activity continues. Vectra Bank broke ground on its new corporate campus in 20Q4. 

Several recent move-outs and a construction delivery put upward pressure on vacancies, which peaked at 17.2% in 20Q3. The vacancy rate has since fallen to 16.8% in 21Q3.  

The average rent in Denver Tech Center historically mirrors the metro average. Like most of the metro, annual rent growth moderated in the submarket in 2020 and into 2021.

Investors seeking to enter Denver’s robust office market without paying sky-high prices in the urban core often look to DTC and the greater Southeast Suburban Corridor. Sales volume reached a cyclical-high in 2019, and the average transaction price per SF was a fraction of those in downtown submarkets. Out-of-state players made the biggest splashes, targeting 1980s and 1990s vintage product with higher occupancy rates. Deal volume fell significantly at the onset of the pandemic, but investors appear to have returned to the DTC submarket with a number of major sales closing in 2021.

Greenwood Village

Summary

Greenwood Village is one of Denver’s premier office hubs. It is surrounded by some of Denver’s wealthiest zip codes, providing a strong base of highly skilled workers for companies to draw from. In the city of Greenwood Village, about 75% of residents have a bachelor’s degree or higher, and nearly half of this cohort has a graduate or professional degree. The median household income is about $130,000.

Office rents in the Greenwood Village Submarket were decreasing at a -0.4% annual rate during the third quarter of 2021, but have posted an average annual gain of 1.9% over the past three years. 

While 13,000 SF has delivered over the past three years (a fractional expansion of the existing inventory), nothing is currently underway. 

Vacancies are trending upwards as the pandemic eats away at office demand.

Investors seeking to enter Denver’s robust office market without paying sky-high prices in the urban core often look to Greenwood Village and the greater Southeast Suburban Corridor. Deal volume fell significantly at the onset of the pandemic, but investors returned to the submarket with a number of major sales closing in the last 12 months.

Inverness

Summary

Located in the southeast suburban area of Denver, Inverness has been a popular location for large corporate users due to the submarket’s access to a strong base of highly skilled workers, relative affordability, and multiple transportation options. Technology, finance, and healthcare companies are prevalent throughout this submarket: DirecTV, Comcast, and ViaSat have a large office presence.

Office fundementals were already slowing in the Inverness submarket before the pandemic. Several large blocks of space (or entire buildings) became available in 2019, as tenants such as AECOM and Arrow Electronics moved to new construction in nearby submarkets. Leasing activity slowed even more throughout 2020, which affected net absorption and reduced the leverage landlords have to raise rents, at least in the near term.

Major office developments have been limited in the past decade, with the majority of construction activity taking place in the neighboring Denver Tech Center submarket. No office projects are currently in the works, which could help the recovery of fundamentals going forward.

Investors have been increasingly drawn to the southeast suburban area of Denver and have seized opportunities that come available in the Inverness submarket. After a slow 2020, investment activity has already picked up in 21Q1 with the sale of INOVA Dry Creek 2 for $63.2 million.

NORTH DENVER METRO

Northwest Denver

Summary

Speculative development was virtually nonexistent throughout this past cycle, but a pair of developers have decided to test the waters, albeit on a smaller scale. City Street Investors delivered a mixed-use project named LoHi offices in October with about 30,000 SF of office space  and around 5,000 SF of ground-floor retail. Several blocks away, a spec office project called Firehouse has about 10,000 SF available office space is scheduled to complete later in 2021.

Rent growth moderated in Northwest Denver in 2020, and that continued into 2021. But the slowdown was less pronounced than the metro at large, as the submarket’s stock is relatively less exposed to the uptick in speculative development metrowide that has weighed down rent growth for high-end office space.

Recent expansions to Denver’s light rail network have notable implications in parts of the submarket, both for new development and the existing inventory. With the recent opening of the G-Line, one-third of submarket stock (about 2.2 million SF) is now located within a mile of a light rail station.

Broomfield County

Summary

The Broomfield submarket is located roughly midway between Boulder and Downtown Denver. Its highly rated school system, abundance of work opportunities and recreational activities make it a sought-after area for residents and businesses alike. Broomfield is one of the main suburban tech hubs in the region, but a long list of companies in various industries drive the local economy. Several major office hubs exist in the area and various arterial highways make for an easy commute for the high number of well-paid residents in the area.

While fundamentals have been healthy in the past, several large move-outs in recent years put upward pressure on vacancies. The vacancy rate stands at 12.7% in 21Q3, up from its low point of 6.5% in 19Q2. Rent growth was slowing even before the outbreak, and moderate rent losses are expected as tenants continue to evaluate office space requirements amid the growing popularity of hybrid work models.

Boulder

Summary

The Boulder Submarket in Boulder is a very large submarket that contains roughly 12.7 million SF of office space. The vacancy rate has risen significantly over the past 12 months, and at 11.8%, the rate is the highest it’s been in over a decade. 

Annual net absorption came in at a decrease of 340,000 SF over the past year. The story improves over a longer timeframe: Over the past five years, the submarket has posted net absorption of about 32,000 SF per year, on average. Rents fell by 1.3% over the past year. Things look much better on a longer timeframe, however, as rents have increased at a rapid clip of 4.1% annually on average over the past decade. 

The 150,000 SF currently underway in Boulder is the lowest construction count in more than three years. This represents a continuation of new development in the submarket, which had already seen 530,000 SF deliver over the past three years, representing an inventory expansion of 4.4%. 

Office properties have traded with regularity in recent years, and last year, the number of sales significantly exceeded the three-year average. With the widespread distribution of vaccines, workers are beginning to return to the office. But it will likely take time before many companies bring 100% of their employees back, and that could make for a less linear office recovery. 

**Information provided by CoStar

Colorado Real Estate News

Submarket Spotlight: Cherry Creek

If you live, work, or play in Cherry Creek, it’s no surprise that Cherry Creek is booming with new construction, new tenants and incredible workout spots, food, shopping and more. The new Clayton Hotel is a membership-only club. The Hotel is open to everyone, however, if you want an exclusive membership then Clayton is the place for you. For members, Clayton offers incredible rooftop views, a pool for lounging, a couple restaurants for eating and plenty of space to take meetings, accomplish tasks or to just relax. Clayton offers two restaurants hat are open to the public on the lower level. Oak Market and Of A Kind. Oak Market is a quick grab and go or sit and relax European Style bakery. It has all you need to get your day started Oak Market’s cinnamon rolls and chocolate croissants are incredible. From Monday-Sunday Oak Market is open from 7am -3pm. They offer Happy Hour from Wednesday-Sunday 3pm-7pm. Of A Kind is a sit-down restaurant that is open for dinner Tuesday-Sunday from 5pm-10pm. The bar is open from 4pm-11pm. Of A Kind brings a Mediterranean/Californian fusion to Cherry Creek – from salads to hummus plates to pasta, you will find yourself enjoying every meal you have here. Of A Kind meals are prepared from scratch and they are responsibly-sourced.

Photo Credit: CoStar (260 Josephine Street)

In addition to the new Clayton Hotel, there are a number of other new buildings in Cherry Creek. 260 North Josephine is a 70,000 square-foot mixed-use building featuring Class AA office space, three levels of below grade parking and ground floor retail. There are two new tenants on the ground floor of this building: Shake Shack and Barry’s Bootcamp. Both places have unbelievable shakes and burgers. Okay, maybe Barry’s Bootcamp doesn’t have a burger. But they do offer delicious protein shakes that you are able to get pre/post workout or if you are just needing that extra “pick me up”.  Another new project in the area is the UC Health building on 100 Cook Street. Completed in 2021, this 88,000 square foot medical service building boasts all-glass architecture surrounded by heavy earth tones. The buildings warm, earthy design fits perfectly with the continued development in the Cherry Creek area.                                                                                                                                                                     

Nearby on 135 Adams Street, you’ll see a new-build featuring 37 boutique micro-apartments. Studio 135 is unique in comparison to other apartment buildings for multiple reasons. One of them being that each apartment is a different, unique theme. All units are designed with state-of-the-art appliances like Bosch kitchen appliances, Corian countertops, beautifully-engineered hardwood floors, individual heating and cooling units, floor-to-ceiling windows and extra storage space. Studio 135 provides residents with TV Zones, a wet bar, workstation, rooftop patio with a built-in BBQ and a fire feature to relax and hang out with friends and family. The micro-apartments range from 214 square feet to about 900 square feet.

Photo Credit: CoStar (240 Saint Paul)

One of the biggest developments in Cherry Creek North is 240 Saint Paul. 240 Saint Paul is a beautiful, contemporary Class A office building located in the heart of Cherry Creek North. Located right across from Soul Cycle, this stunning office building will be home to Equinox, Polestar, Parachute and more. This building is energy-efficient with a state-of-the-art HVAC system that circulates the maximum amount of outdoor airflow and utilized MERV-13 filters which are the highest form of air filtration recommended by the CDC. 240 Saint Paul will have a touchless entry system in the main entrances and the lobby. There will also be a fully-valeted lower level parking garage. Nearly 100% occupied, 240 Saint Paul is set to be completed in the Fall of 2021.

Proposed builds in the Cherry Creek area include 200 Clayton, located is right across from North Italian Restaurant. Broe Real Estate is planning an all glass eight-story building on the corner of 2nd and Clayton. This mixed-use building will include office space in addition to 5,600 square feet of ground-floor retail. The architect for this project is Beck Group.

Photo Credit: Denver Infill (200 Clayton)

235 Fillmore and 2nd and Adams are two sites that are also in the proposal process. 235 Fillmore is located right across from Spaces. BMC Group purchased this parking lot and is planning to build 90,000 square feet of office plus 9,000 square feet of ground-floor retail space.

Photo Credit: Denver Infill (235 Fillmore Street)

Cherry Creek is continuing to grow and develop into a neighborhood full of luxury apartments, condominiums, fabulous retail and restaurants and modern office buildings. Cherry Creek has been able to remain true to its charm in keeping the new developments unique but having a similar foundation remaining constant in Class A office buildings and condos/apartments, with a strong contemporary, warm, earthy feel

Colorado Real Estate News

Submarket Spotlight – RiNo/Platte River

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Copied 10/26/2020

The River North Arts District (RiNo)/Platte River submarket was arguably one of the hottest submarkets in downtown Denver heading into 2020. Speculative development has reached record levels in multiple parts of the submarket, namely the up-and-coming RiNo neighborhood and ballpark area. 

Leasing:
The average daily asking rent has remained relatively flat, although concessions are likely becoming more prevalent. At over $42 per SF, Platte River has one of the more expensive offerings in the Denver metro by a sizable margin. The next highest average rent is in LoDo, which is more than a 10% discount from Platte River rates. Relative to the average office rent in Denver as a whole, Platte River rents are about 50% higher.

Construction:
The Colorado Governor deems jobs in the construction industry as essential, which has allowed developers to move forward with projects if they chose to do so. With abundant land and underdeveloped prime locations, Platte River will likely be a corridor of growth over the long haul. Since 2013, almost 400 acres of land sales have closed in the submarket totaling over $500 million in sales. 

Sales:
Investment activity has slowed considerably due to drastically altered conditions brought on by the pandemic. Once the dust settles, there could be opportunities for shrewd investors, especially considering the unprecedented level of speculative development occurring in Platte River. Investment activity in Platte River took a step back in 2019 after a record year for sales the previous year. Nevertheless, last year’s sale volume was the second-highest market of the cycle.

Featured New Development:
Rev360 on Brighton Boulevard – REV360 joins a thriving commercial redevelopment along Brighton Boulevard that is transforming the area – a rebirth that includes blocks of unique restaurants, galleries and shops. Its close proximity to the RTD rail station will make it an ideal spot for businesses drawing local talent from outside the metro area.

**Information provided by CoStar

Colorado Real Estate News

The “New Normal” or “Back to Normal” – How important is having physical space for your business?

Conference Room Meeting in Motion.jpeg

Copied 10/09/2020

After considerable reading, conversations with industry colleagues and clients, general observation on how companies have been adjusting to work this past year, and how they plan to continue working post-Covid, I have realized that there are three main pillars of why we go to the office to begin with, and why the companies who have decided to make working from home the “new normal” will eventually see decreased productivity and ultimately, less success.

Culture: 
Company culture has always been extremely important and we have seen the focus in office decisions pivot from looking solely at price per square foot to the more objective criteria that will impact who the company is and the brand for which they stand.

Human Interaction/Collaboration:
Human interaction is so important to our mental and physical health. As human beings, we thrive on the physical face-to-face connection which aids in stronger relationships, employee retention, increased productivity, innovation and work performance, which are all essential in creating a successful workforce.

Recruiting/Training:
Recruiting and training personnel is a crucial function of any business, and having the ability to successfully hire, retain and grow the right people for your company is best accomplished in a physical workspace that promotes engagement with employers as well as their fellow employees.

I have recently heard many of the ‘big tech’ companies discuss going to a permanent work from home model. It’s undeniable that the Covid-era has thrust us into unprecedented and challenging times, but I believe it’s also important for us to take pause and recognize that it will improve with time, and with the development of therapeutic treatments and vaccines. Most people will be eager to rush back to their workplace with a deeper appreciation of what it means to be in the office with their colleagues. The in-person collaboration, the chance encounters in the hallway or breakroom that turn into brilliant ideas, as well as the opportunity to have face-time with your managers all provide an invaluable experience. Strong company culture is essential to attract new talent and retain your employees, and it is nearly impossible to create and foster a desirable company culture via ZOOM calls and emails alone. 

While many landlords and retail property owners are currently facing financial strain, Denver’s fundamentals are still strong. I believe that in the next 12-18 months, the commercial real estate market will begin to come back as people more regularly return to the workplace, lunch with colleagues, meet clients for drinks after work – bringing us all a needed sense of the “back to normal” we all require to succeed, both personally and professionally. 

-Solveig Tschudi Lawerence, Senior Commercial Advisor