Denver,
Downturn still mires metro office market
rockymountainnews.com
Recovery in the local economy lags behind nation's, report says
By John Rebchook, News Real Estate Editor
May 8, 2002
The three major Denver-area office markets -- downtown, northwest and southeast -- continued their slide in the first quarter, the latest sign the metro area's recovery is trailing the nation's.
The report by CB Richard Ellis shows that the markets have been hammered by office vacancy rates: More than 21 percent downtown and more than 48 percent in the northwest corridor, when subleased space is included.
In addition, tenants vacated more than 1.6 million square feet of space in the first quarter, in what is known as negative absorption.
"As the national economy picks up steam, the outlook for metro Denver is not so bright," according to the report. "Denver is expected to lag much of the rest of the country in recovery."
The report, and others like it, reinforces the metro area's need to create more jobs -- and keep the existing ones, said Anne Warhover, president of the Downtown Denver Partnership.
"I'm not just talking about downtown," she said. "This report is certainly a reflection of the corporate mergers and cutbacks. We need to get more aggressive about bringing and retaining jobs here."
The report notes that two-thirds of the layoffs in the region last year were in advanced technology and telecommunications.
Among CB's findings are a dramatic rise in negative absorption, a result of layoffs and company closings. Negative absorption is the net loss in occupied space during the period. So if a company was leasing 100 square feet and downsized into 50 square feet, it created 50 square feet of negative absorption.
Downtown was hammered by a record 897,047 square feet of negative absorption. Net occupied space dropped by 397,280 square feet in the southeast and by 333,605 square feet in the northwest corridor.
But office vacancy rates in the northwest corridor, along U.S. 36, were much higher than in the other two markets: 48.5%, compared with 21.3 percent downtown and 25.6 percent southeast.
"Downtown is actually two markets," said CB broker Mark Ballenger. "You have the Class A buildings, which . . . are very well leased and holding the line on rents. And then you have almost 1.5 million square feet of subleased space. The asking price for that space is 'make me an offer.' "
There are even greater opportunities along the northwest corridor, which has grown from 1.5 million square feet of leasable space in 1997 to 7 million square feet, said Frank Kelly, a CB broker.
For companies with good credit, the northwest market is awash with free-rent promotions and offers hefty tenant improvements, moving allowances and large brokerage commissions, he said.
"They're all in play right now," Kelly said.
Economist Patty Silverstein of Development Research Partners, said the report "is certainly kind of discouraging news, but not totally surprising given the economic indicators we've seen through the first quarter."
She said the report shows that the impact of the job losses, but it also could provide an opportunity.
"Looking for a silver lining, on the recruitment side we have office space available," she said. "We had so many years of a tight office market, we started thinking having very low vacancy rates was kind of normal and it was not." |
