CREJ

Page 20 — Office Properties Quarterly — March 2020 www.crej.com Outlook COST EFFECTIVE VALUE ADD SOLUTIONS DESIGN / COLOR CONSULTATION SELANTS & SPECIALTY COATINGS REBRAND REPOSITION RESTORE INTERIOR / EXTERIOR PAINTING 303-861-2030 / denvercommercialcoatings.com homes, Denver’s housing prices trumped four of the top five markets on PwC’s list, registering a median home price of $408,360 – nearly 38% higher than the median home price in Austin. Given state laws on prop- erty taxes, commercial properties shoulder a 55% burden of property taxes while residential property taxes cover the remaining 45%. This means that while residential values con- tinue to spike, the tax burden placed on commercial asset owners also continues to increase. To combat rising taxes, commer- cial property owners are beginning to transition from traditional “gross” leases to triple-net leases. This lease structure places the burden on ten- ants and decreases the affordability of office space. With rates reaching as high as $38 per square foot NNN in downtown Denver’s central business district, the fear of losing potential newcomers to more affordable mar- kets is quickly becoming a reality. In addition to increasing taxes, expecta- tions for tenant improvement allow- ances needed to nail down leases come at a lofty price tag for owners as frictionally low unemployment of 2.3% continues to drive up the cost of construction. Despite the challenges, Denver has plenty of ripe ingredients to put it back on the menu. Its unique cul- ture, popular lifestyle and deep tal- ent pool have been key to Denver’s strong growth trajectory, and the city should not lose sight of what has kept Denver atop the commercial real estate community in recent years. But what Denver needs moving for- ward is a plan for smart, sustainable growth that recognizes the conse- quences of fast-paced urban sprawl and positions the city to embrace future growth. Legislation and senti- ment opposing growth and economic development locally referred to as “not in my backyard” legislation act only as an accelerant of the current issue. The ability to combat a high cost of living, crowded infrastructure and increasing taxes is the com- mon denominator among the cities that toped PwC’s list of “Markets to Watch.” Not surprisingly, the looming threat from a lack of such measures fed the delta between Denver’s rank at No. 8 last year and No. 17 this year. But this is not cause to abandon the progress Denver has made so far. Developers should continue to adopt the urban revitalization model dem- onstrated by Denver’s Lower Down- town neighborhood and River North Arts District while considering the interests of companies that will occu- py these new projects. Affordability dictates most decisions, and the city must come to a consensus on attack- ing rising costs of doing business. Denver is well positioned as a “hold” market for office investment, signifying that the metro has not yet reached maturity and there remain opportunities for future accrual of value. With the construction pipe- line hovering around 3.2 million sf of space, the injection of newly deliv- ered office product will be critical in maintaining that Denver has the capacity to adopt new entrants to the market. Rising costs will continue to pose the biggest threat to the city’s growth efforts, but collaboration among Den- ver’s decision makers and all inter- ested parties will be the key ingredi- ent to staying on the menu. The Mile High City remains on the shortlist of U.S. commercial real estate markets and will inevitably climb its way back to the top. s Continued from Page 1 Transwestern