M A R K E T B E AT

ECONOMY OVERVIEW: Denver Economy Remains RobustDenver’s economy closed out 2019 with strengthening economic fundamentals, recording an approximate 2.1% increase in non-farm employment from the fourth quarter 2018. In turn, Denver’s unemployment rate decreased 90 basis-points (bps) year-over-year, to 2.6% representing one of the lowest large-metro unemployment rates in the nation. Denver continues to benefit from the evolving industry diversity that has been largely influenced by the tech industry’s robust growth over the past 24 months. Denver’s momentum should continue throughout 2020, albeit at a slower pace, as signs of a slowing national and local economy continue.

SUPPLY AND DEMAND: Vacancy Contracts to Close Out 2019Overall vacancy recorded a 30-bps decrease quarter-over-quarter, decreasing to 14.5% to close out the year. Direct vacancy also contracted, decreasing 20 bps from the third quarter to the fourth quarter 2019, to 13.2%. This decrease is largely attributed to the Central Business District (CBD) and the Southeast Suburban (SES) submarkets, which had large move-ins by SunRun, Lockheed Martin and WeWork occur during the fourth quarter 2019.

Class A product recorded a sizeable decrease of 100 bps to 14.5%, quarter-over-quarter, while Class B product recorded a slight increase of 20 bps to 15.4% to finish the year. This mirrors the overall trend of 2019, with Class A product continuing to see the bulk of tenant activity as occupiers continue to view their real estate as an employee recruitment and retention tool. Most of this product lies in amenity rich areas, accessible to public transportation and attractive finishes that entice both companies and employees alike

PRICING: Rates Continue to Grow, Albeit at a Less Torrid Pace Than Prior YearsOverall gross rental rates remained relatively flat from the third quarter to the fourth quarter 2019, increasing $0.03 per square foot (psf) to $28.62 psf at the end of 2019. On a year-over-year basis, overall gross rental rates grew 2.1% from when rates were $27.99 psf. This represents a large decrease compared to the 4.2% average increase realized in the prior three years.

Direct gross rental rates recorded a moderate increase quarter-over-quarter, increasing $0.19 psf to $28.55 psf at the end of the fourth quarter 2019. Year-over-year, direct gross rental rates increased approximately 1.1%, from $28.25 psf, one year ago. All classes exhibited rental rate increases on a quarter-over-quarter basis, with Class B product recording the most sizable increase of 2.9%, to $25.58 psf at the end of 2019. This increase was largely due to large blocks of Class B product being vacated, most notably Whiting’s move-out at 1700 Broadway.

14.5%Vacancy Rate

509KNet Absorption, SF

$28.62Asking Rent, PSF

ECONOMIC INDICATORSQ4 2019

2.6%

12-Mo. Forecast

Denver Unemployment Rate

1.5MDenver Employment

3.6%U.S. Unemployment Rate

12-Mo. Forecast

DENVER METRO SPACE / DEMAND DELIVERIES DENVER METRO RENTAL RATE VS. VACANCY RATE

YoY Chg

Source: BLS

YoY Chg

(Overall, All Property Classes)

DENVER, COLORADOOffice Q4 2019

0

500

1,000

1,500

2,000

2,500

3,000

3,500

2015 2016 2017 2018 2019

Thou

sand

s

Net Absoprtion, SF Construction Completions, SF

5.0%

7.0%

9.0%

11.0%

13.0%

15.0%

17.0%

$11.00

$14.00

$17.00

$20.00

$23.00

$26.00

$29.00

$32.00

$35.00

2014 2015 2016 2017 2018 2019

Direct Gross Rent-Class A Direct Gross Rent-Class B

Direct Vacancy Rate-Class A Direct Vacancy Rate-Class B

M A R K E T B E AT

ACTIVITY: Class A Activity Drove the Market in 2019Leasing activity recorded a 13.1% decrease quarter-over-quarter with roughly 2.0 million square feet (msf) leased during the fourth quarter 2019. Even with the decrease on a quarterly basis, year-end new leasing activity recorded 9.4 msf, on par with the annual average of the prior three years. Class A product continued to see the bulk of activity throughout 2019, representing roughly 58.2% of leasing activity with approximately 5.5 msf leased. The most notable deal executed during the fourth quarter 2019 was Computershare’s 282,000 square foot (sf) sublease at 6200 S. Quebec Street from AECOM. The second largest transaction during the quarter was DanoneWave’s 144,200 sf renewal in the Northwest Corridor at 12002 Airport Way. Rounding out the top three was Comcast Spotlight’s 68,600 sf renewal and expansion at 1899 Wynkoop Street in the CBD.

ABSORPTION: Q4 2019 Absorption Ends on a High-NoteAbsorption recorded its strongest quarter of the year with approximately 509,200 sf of net absorption metro-wide in Q4 2019, bringing the year-end total to 1.8 msf metro-wide for 2019. This is a far cry from the over 2.7 msf absorbed during 2018, but is higher than the prior three-year average of approximately 1.2 msf.

CONSTRUCTION: One Building Delivers During Q4 2019The Denver metro office market had one building deliver and one building break ground during the fourth quarter 2019. The lone delivery to the market was Platte 15, which delivered approximately 138,500 sf of office and 18,400 sf of retail product to the CBD and was 59.7% preleased to EF Education and Pivotal. The Boulder submarket recorded the only project that broke ground during the fourth quarter 2019, with the second phase of Boulder Commons in the Central Boulder micro-market. This building will bring approximately 40,000 sf of office and 12,000 sf of retail to the tight Central Boulder micro-market and is set to deliver during the summer of 2020. Currently there are 10 developments under construction for approximately 1.7 msf of new office product, all of which are set to deliver during 2020, with the exception of McGregor Square (210,900 sf), which is set to deliver mid-2021. Collectively these buildings are roughly 26% preleased, which is expected to increase as these buildings near completion.

5.0%

7.0%

9.0%

11.0%

13.0%

15.0%

17.0%

19.0%

$20.00$22.00$24.00$26.00$28.00$30.00$32.00$34.00$36.00$38.00$40.00

RiNo CBD CherryCreek

Boulder SoutheastSuburban

NorthwestCorridor

DenverMetro

Direct Gross Rental Rate Direct Vacancy

DENVER METRO SUBMARKET COMPARISON

10.0%

11.0%

12.0%

13.0%

14.0%

15.0%

16.0%

17.0%

2014 2015 2016 2017 2018 2019

Historical Average: 13.92%

DENVER METRO OVERALL VACANCY VS. HISTORICAL AVG.

$16.00

$18.00

$20.00

$22.00

$24.00

$26.00

$28.00

$30.00

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2014 2015 2016 2017 2018 2019

SF (

Milli

ons)

Overall Absorption Overall Asking Rent, $ PSF

DENVER METRO ABSORPTION VS. OVERALL ASKING RATE

Outlook

• As the oil and gas sector in downtown Denver continues to downsize, expect up to 15 floors of sublease space to be placed on the market.

• High quality blocks of office (100k and greater) will become more limited as larger tenant leasing accelerates and will prove frustrating to large existing and inbound tenants.

• The local organic tech expansion, coupled with the tech exodus out of California will account for most metro absorption in 2020.

• Net coworking growth in 2020 will be nominal at best.

DENVER, COLORADOOffice Q4 2019

M A R K E T B E AT

SUBMARKET INVENTORY (SF)

SUBLET VACANT

(SF)

DIRECT VACANT

(SF)

OVERALL VACANCY

RATE

CURRENT QTR OVERALL NET

ABSORPTION (SF)

YTD OVERALL NET ABSORPTION

(SF)

YTD LEASING ACTIVITY

(SF)

UNDER CNSTR

(SF)

OVERALL AVG ASKING RENT

(ALL CLASSES)*

OVERALL AVG ASKING RENT

(CLASS A)

Boulder 5,870,235 391,270 119,184 8.7% -7,645 205,912 505,578 157,956 $34.93 $37.72

Midtown (Non-CBD) 3,900,571 429,276 115,809 14.0% -11,810 -70,260 205,489 28,036 $26.62 $25.90

CBD 30,380,093 4,457,048 546,735 16.5% 264,283 887,791 2,491,865 872,350 $37.54 $42.02

RiNo 1,638,712 299,530 705 18.3% 30,377 251,623 371,852 228,698 $48.25 $37.47

Northeast/Aurora 7,685,935 1,079,165 2,100 14.1% -8,168 1,561 402,320 0 $20.85 $23.43

Northwest 14,355,396 2,044,981 147,080 15.3% -174,732 -259,811 997,004 0 $26.46 $28.95

Southeast Suburban 32,693,499 4,446,878 432,336 14.9% 394,224 420,376 3,105,224 364,970 $25.80 $27.46

Southeast Central 10,983,083 1,166,983 80,473 11.4% 5,538 437,210 790,829 64,680 $25.92 $32.00

Southwest 9,624,138 1,089,874 140,771 12.8% 17,182 -56,539 578,879 0 $21.24 $24.62

DENVER TOTALS 117,131,662 15,405,005 1,585,193 14.5% 509,249 1,817,863 9,449,040 1,716,870 $28.62 $32.25

KEY LEASE TRANSACTIONS Q4 2019PROPERTY SUBMARKET TENANT SF TYPE6200 S. Quebec Street (Millennium Plaza) Southeast Suburban Computershare 282,000 Sublease

12002 Airport Way (Mountain View - Bldg 4) Northwest Corridor DanoneWave 144,197 Renewal*

1899 Wynkoop Street Central Business District (LoDo) Comcast/Spotlight 68,553 Renewal*/Expansion

1625 Broadway (Ohm) Central Business District (Uptown) Noble Energy 67,500 Renewal*

1225 17th Street (Seventeenth Street Plaza) CBD (Midtown) Salesforce 64,097 New Lease

*Renewals not included in leasing statistics

KEY SALES TRANSACTIONS Q4 2019PROPERTY SUBMARKET SELLER / BUYER SF PRICE/ $ PSFDenver Centerpoint Portfolio Colorado Blvd/Glendale Schnitzer West / TerraCap Management 373,724 $77.5M / $207

7979 E. Tufts Avenue Southeast Suburban Guardian Life Insurance / Lowe Enterprises 366,184 $62.3M / $170

6312 S. Fiddlers Green Circle (Tuscany Plaza) Southeast Suburban Crescent Real Estate / America’s Capital Partners 257,875 $64.9M / $251

7887 E. Belleview Avenue (Belleview Tower) Southeast Suburban Unico Properties / Endeavor Real Estate Group 201,670 $40.1M / $199

3600 S. Yosemite Street Southeast Central Sperry Commercial / SF Partners 126,436 $13.4M / $106

KEY CONSTRUCTION COMPLETIONS YTD 2019PROPERTY SUBMARKET MAJOR TENANT SF OWNER / DEVELOPER3601 Walnut Street (Hub South) RiNo HomeAdvisor 279,317 Beacon Capital Partners2375 15th Street (Platte 15) Central Business District (CPV) EF Education 156,915 Crescent Real Estate999 17th Street (Prism) Central Business District (Midtown) N/A 111,836 Shea Properties

205 Detroit Street (Financial House) Cherry Creek Bow River Capital 74,085 Everwest JV Power Financial/Bow River Capital

MARKET STATISTICS

DENVER, COLORADOOffice Q4 2019

*Rental rates reflect full service gross asking

M A R K E T B E AT

OFFICE SUBMARKETS

cushmanwakefield.com

A CUSHMAN & WAKEFIELD RESEARCH PUBLICATIONCushman & Wakefield (NYSE: CWK) is a leading global real estate services firm that delivers exceptional value for real estate occupiers and owners. Cushman & Wakefield is among the largest real estate services firms with approximately 51,000 employees in 400 offices and 70 countries. In 2018, the firm had revenue of $8.2 billion across core services of property, facilities and project management, leasing, capital markets, valuation and other services.

©2020 Cushman & Wakefield. All rights reserved. The information contained within this report is gathered from multiple sources believed to be reliable. The information may contain errors or omissions and is presented without any warranty or representations as to its accuracy.

MICHAEL COPPOLAAssociate Market DirectorTel: +1 303 312 4212michael.coppola@cushwake.com

DENVER, COLORADOOffice Q4 2019