Office rents are rising in Denver, even as oil and gas companies flood market with space to sublease

July 07, 2016 / Posted in Denver, Downtown, Real Estate

Comcast, SendGrid, Liberty Mutual and Whole Foods signed new leases in the Denver area


A downturn in the oil and gas market has contributed to an increase in the amount of space available for sublease in the Denver office market as companies shed space within the Central Business District.

Oil and gas tenants such as Noble Energy, Dorado E&P and Sterling Energy have put more than 760,000 square feet of space up for sublease downtown, according to a preliminary Cushman & Wakefield report.

The overall second-quarter Denver office vacancy rate increased just one-tenth of a percentage point to 11.4 percent from last quarter. The tiny increase reflects the rise in available sublease space, as direct vacancy remained unchanged over the quarter.

The market has been slow to absorb space. The Denver market finished the second quarter with 435,335 more square feet available for lease than it started with. The negative absorption was directly related to the oil and gas industry, said Andrea Jones, vice president of marketing and research at Cushman & Wakefield.

The largest decreases in absorption were in the CBD and the Denver Tech Center, according to the report. Of the 87 markets Cushman & Wakefield track, Denver was one of 22 to experience negative absorption. Still, the market ended the first half positive.

“It is not uncommon to see job growth and absorption levels decelerate as the economy nears full employment,” said chief economist Kevin Thorpe in a separate Cushman & Wakefield report focused on national trends.Unemployment in Colorado was 3.4 percent in May; nationally, it was 4.7 percent.

Much of the Denver-area leasing activity was in renewals and new deals set to occupy later this year and early next year. In key lease transactions, Comcast, SendGrid, Liberty Mutual and Whole Foods signed new leases for a combined 349,000 square feet. The Department of Energy renewed its Cole Boulevard lease for 69,000 square feet.

“Denver has become a very sought-after city, so there’s a lot of growth,” Jones said. “As long as millennials are wanting to move here and find jobs, companies are going to want to be here and have access to those employees.”

The city’s has about 3 million square feet of office space under construction. 16 Chestnut, a 428,000-square-foot, Class A project, broke ground in the second quarter in the CBD. DaVita, a health care company based in Denver, will occupy 80 percent of that space. Also in the second quarter, Comcast leased 100 percent of United Properties’ 212,000-square-foot Inova project at Dry Creek and Havana.

Metrowide, average rent increased slightly quarter-over-quarter to $24.90 per square foot, up 4.6 percent from last year. Average rates for new Class A space in the LoDo and downtown Boulder markets are eclipsing $50 per square foot. CBD edged out the Boulder submarket for the highest rates.

Nationally, office rents reached their strongest growth rate in seven years: Average prices increased 5.8 percent over last year to $29 per square foot.