February 6, 2020
CRE companies issuing Q4 2019 reports about Denver’s office market were unanimous in their observations about absorption. Specifically, all agreed there was a lot of it when it came to office space.
CBRE commented that the market’s year-end absorption of nearly two-million square feet marked “the second-highest yearly net absorption recorded since 2014.” Cushman & Wakefield analysts added that, while the 1.8 million square feet absorbed was “a far cry from the over 2.7 msf absorbed during 2018,” the figure was higher “than the prior three-year average of approximately 1.2 msf.” Newmark Knight Frank also applauded the absorption metrics, noting that the annual numbers were “well above the 10-year average . . .”
Vacancy, in the meantime, remained relatively flat quarter over quarter, but, according to Avison Young, “remains the lowest year-end vacancy rate the Denver market has seen in the current cycle . . .” as well as representing a drop from the 2018 year-end vacancy of 11%. Cushman & Wakefield researchers pointed out that asking rents continued growing, but less rapidly than in years past.
CBRE’s 2020 forecast is for continued positive net absorption “as more large users occupy already-leased blocks of space” and technology user activity is anticipated to remain strong. Avison Young pointed owners’ moves toward “investing in large-scale renovations to retrofit existing buildings with the modern amenities,” to compete with new construction. Meanwhile, Cushman & Wakefield is calling for an increase in sublease space, as the downtown Denver oil and gas sector continues to contract.
Still, “high-quality blocks of office will become more limited as larger tenant leasing accelerates . . .” the Cushman & Wakefield researchers said. NKF analysts agreed, suggesting that “strong absorption and a restrained development pipeline will likely push vacancy lower over the next several quarters.”
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