CREJ - Office Properties Quarterly - October 2015
Denver’s highly educated workforce is drawing a steady flow of companies to the metro area and contributing to an increased demand for office space. In Denver’s thriving business community, many companies are outgrowing their current leases. Transamerica Corp., for example, announced that it will be moving from the Denver Tech Center, a business and economic trading center in the southeastern portion of the Denver metropolitan area, to downtown Denver. The company will lease 121,000 square feet in the 1801 California St. tower. The move will enable the company to hire an additional 325 workers, doubling its local workforce. In addition, Comcast will consolidate its local operations in an office in the DTC, increasing its overall footprint and workforce. Overall, employers in Denver will add 45,000 jobs this year, boosting total employment 3.3 percent. Total office-using employment will advance 2.1 percent, or by 8,000 workers. The confidence of developers in the metro remains high amid tightening operations. Several projects broke ground recently; a good deal of those are starting with little or no preleasing. Builders are on the hunt for transit-oriented areas along the light rail. Other construction projects are build-to-suit, such as the project for Panasonic Enterprise Solutions, a subsidiary of Panasonic Corp., which will open a new technology center and business solutions hub at the Peña Boulevard light-rail station near Denver International Airport. The facility will be completed in the summer of 2016, enabling the company to fill 330 positions. In total this year, developers are set to raise office stock 1.3 percent with the completion of 2 million sf, compared with approximately 1.1 million sf in 2014. Roughly 3 million sf of office space is underway. Only about 50 percent of the total is preleased. Denver’s economy, favorable yields and strong operations are attracting nationwide attention from investors. Many financial institutions are easing lending standards for office properties, which supplies buyers with more capital to make purchases as rising competition pushes prices higher. The interest from institutional buyers is prominent near downtown and the DTC. Well-priced properties bring numerous offers across a short time span. Buyers searching for additional yield are focusing on properties in the west Denver and Aurora submarkets, which are older. Competition in west Denver and Aurora is muffled and cap rates often top 8 percent. Increasing demand will accelerate the timeline of owners who are considering near-term dispositions, especially those with well-located, low-vacancy assets, boosting transaction velocity market wide.