marketbeat denver, colorado - cushman & wakefield · pdf file 2020. 1. 31. ·...

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  • M A R K E T B E AT

    ECONOMY OVERVIEW: Denver Economy Remains Robust Denver’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 2019 Overall 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 Years Overall 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

    509K Net Absorption, SF

    $28.62 Asking Rent, PSF

    ECONOMIC INDICATORS Q4 2019

    2.6%

    12-Mo. Forecast

    Denver Unemployment Rate

    1.5M Denver 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, COLORADO Office Q4 2019

    0

    500

    1,000

    1,500

    2,000

    2,500

    3,000

    3,500

    2015 2016 2017 2018 2019

    Th ou

    sa nd

    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 2019 Leasing 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-Note Absorption 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 2019 The 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 Cherry Creek

    Boulder Southeast Suburban

    Northwest Corridor

    Denver Metro

    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 (

    M illi

    on s)

    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, COLORADO Office 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 2019 PROPERTY SUBMARKET TENANT SF TYPE 6200 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) Nob

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