Vacancy rates jump along U.S. 36 corridor
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Vacancy rates jump along U.S. 36 corridor
Subleased space driving numbers to record levels
By John Rebchook, News Real Estate Editor
The office-vacancy rate along Denver's version of the Silicon Valley -- the U.S. 36 northwest corridor -- has skyrocketed to 28 percent from 1 percent at the end of 2000, a top broker said Friday.
A huge amount of subleased space on the market is driving up the vacancy rate to record levels, said Chris Phenicie, who, along with David Hart, owns the Commercial Colorado brokerage company that specializes in doing deals along the corridor.
When buildings under construction are included, there's about 1.5 million square feet of subleased space on the market, which is more space than even existed along the corridor a few years ago, Phenicie said.
Six months ago, the U.S. 36 corridor had the lowest office-vacancy rate in the metro area -- now it has the highest.
One of the largest blocks of space is 300,000 square feet that Level 3 has under construction. The brokers said that now the company won't be occupying the space.
On Friday, Level 3 released a statement saying that while it reviews its worldwide real estate holdings on an ongoing basis, it doesn't comment on specific properties. This week, Level 3 announced it was laying off 1,400 people nationally -- 500 of them at its headquarters in the Interlocken Business Park in Broomfield, where it has an 850,000-square-foot campus.
Phenicie also is listing a 133,000-square-foot building for Sun Microsystems in the Westmoor Technology Park in Westminster.
"They were ready to occupy it -- they have the furniture in there and everything," Phenicie said. "But it doesn't have to do with the usual dot-com reasons. The group they had slotted to move into that building is now going down to Austin (Texas). There have been so many high-tech layoffs in Austin, they feel like it is a real opportunity to recruit people they need down there."
Two Sun spokesmen on Friday said the company is evaluating its real estate holdings in Colorado and worldwide and would be leaving some leased space to move into offices it owns.
Phenicie said the good news along the corridor is that there are tenants looking for about 350,000 square feet of space, and many of them aren't in the high-tech industry, which will bring some diversity to the market.
However, he still expects the market will end the year with about a million square feet of subleased space, and it will probably take about a year to lease up that space. He expects building to pick up again by the end of 2000.
The U.S. 36 corridor is reminiscent of what happened to downtown Denver in the mid-1980s when the energy-industry crash occurred, said Bill Lucas, a vice president of Jones Lang LaSalle, who is listing the Sun building with Phenicie. At that time, downtown had an office-vacancy rate that topped 30 percent, the highest in the nation.
But the U.S. 36 corridor, in part because it is so much smaller than downtown, has spiraled downward much faster.
"It was like the spigot was going full blast, and then somebody just cut it off," Lucas said. "Companies were saying we grew 26 percent last year, we're going to grow 30 percent this year, so we need another 200,000 square feet."
There's now about as much subleased space along the northwest corridor as along the southeast corridor, but the southeast corridor is about five times larger than the northwest corridor, he said.
Lucas said two problems plague the corridor. The market is filled with high-tech and telecommunications companies, all of which are suffering. And because office campuses such as the 1.1 million-square-foot Sun campus and Level 3's 850,000-square-foot campus are built for specific tenants, it is hard to subdivide those developments for smaller tenants if the big companies begin vacating the space. |
