CREJ

December 2018 — Office Properties Quarterly — Page 19 www.crej.com have to incur. • Infrastructure investments are mak- ing Class B properties more accessible. Another reason why mature Class B properties make for a strategic investment is because of improve- ments to infrastructure and trans- portation. Metro Denver’s invest- ment in the light-rail system has made transportation to the suburbs much easier. In just the past three years, the Regional Transportation District has opened the Univer- sity of Colorado A line to Denver International Airport, the B line to Westminster and the R line through Aurora. The G line providing service to Wheat Ridge is near comple- tion, with future lines to Thornton, Highlands Ranch and Lone Tree in the works. With many Class B office properties located in metro Den- ver’s suburbs, as these communities become more accessible via public transit, demand for those properties will grow. Another factor poised to dramati- cally impact the office market is the mass adoption of autonomous vehi- cles. CBRE released a report this fall that predicts that the autonomous vehicle industry will fundamen- tally reshape the U.S. office market by 2030. The analysis found that autonomous vehicles could account for between 11 and 27 percent of vehicle-miles traveled by 2030. By enabling employees to work, relax or sleep during their commutes, auton- omous vehicles could increase the distance they are willing to travel to the office, creating more demand for office properties that may have been previously categorized as outside a prime geographic area. • Stabilized Class B properties com- bine the best of both worlds. Tradi- tionally, investors have been drawn to trophy assets because of their low-risk profile; they are willing to accept lower returns in exchange for the security of long-term leases with credit tenants. Alternatively, investors like value-add properties because the risk creates opportunity for high returns. Looking ahead to 2019, an inves- tor can think of stabilized/Class B buildings as some of the best of both worlds. They offer higher returns than trophy assets yet, in most cases, are a more secure investment than a value-add offer- ing. As the trophy and value-add opportunity pipeline in Denver cools down, the supply of Class B/stabilized properties remains healthy and access to suburban areas continues to improve, we look forward to a robust midmarket office investment sector in 2019. V Brady Continued from Page 7 that waiting could result in rental rate “sticker shock.” • Douglas: What trends do you pre- dict for 2019-2021? • DePizzol: Desire for flexibility has driven explosive growth in cowork- ing facilities in downtown Denver. Also, scalability has become a big issue for mature and maturing com- panies, and tenants are willing to pay a premium in today’s market for both flexibility and scalability. WeWork is seeking to capture full- floor tenants or tenants requiring future scalability in its facilities at Tabor Center and Wells Fargo Cen- ter, at above-market rates. Cowork- ing providers and savvy landlords will continue to evolve their service models to provide both flexibility and scalability in order to attract and retain tenants in growth mode. • Douglas: What is Denver’s appeal to new and existing tenants? • DePizzol: Though cost of liv- ing, housing and office rental rates continue on upward trends, Denver remains a viable, affordable option for many corporations, especially coastal firms looking to relocate or establish satellite offices. Down- town Class A office space currently has an average leasing asking rate of $40.52 per sf with new construc- tion approaching $60 per sf, a level never before seen in Denver. Even with expected appreciation, Denver rates are still half of Class A rates in downtown San Francisco, for example. The current up-cycle has been long, second only to the cycle start- ing in 1990 after Denver recovered from the oil bust of the ’80s, positive fundamentals point to continued growth in 2019 and beyond. Denver’s economy continues to consistently outperform the nation in terms of job and population growth, home prices, state gross domestic prod- uct and personal income levels. The metro area entered its seventh year of strong job growth, averaging above 3 percent, and ranks in the top 10 for employment change from prerecession peak. Denver’s enviable economic fundamentals, quality of life and connectivity remain compel- ling draws for both employees and companies that seek to hire them. Much of Denver’s recent success centers on its appeal to corporate users, and absorption in downtown Denver has been driven by multiple new tenants in diverse industries, as well as organic expansion. V Douglas Continued from Page 8 CBRE BREAKDOWN OF DENVER MULTITENANT OFFICE INVESTMENT SALES OVER $5,000,000 BY RISK PROFILE (JAN. 2017 THRU NOV. 2018)