Mile High Boom Unfazed by Energy Slump
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Thirty years ago, dropping oil prices were a sucker punch for Denver real estate. This year, not so much. The boom is still on, according to the speakers at our 3rd annual Denver State of the Market.
Metro Denver EDC CEO Tom Clark got the small amount of bad news out of the way first: no condos being built is a factor keeping young families out of the market for a house. Fortunately, a bill to fix the construction defects problem may well pass soon. The other bad news is, of course, the low price of oil, and a drop in rig counts in Colorado. Tom expects that will shave about 1 percentage point off of metro job growth this year—instead of 3.2%, as predicted, it'll be only 2.1%—which is still healthy, owing to the region's diversified economy. In any case, he expects the price of oil to rebound before too long, as it always does.
Broomfield Mayor Randy Ahrens says that companies want to relocate to his city for a number of reasons, such as the improved transit that's going to be offered by rapid bus service on US 36. It's a route that he says is evolving into a "creative corridor," with a lot of solid tech companies already here or interested in the area. As a whole, the Northwest market had the strongest office absorption last year, at about 386k SF, while Downtown Denver—which is about four times the size of the Northwest market—experienced 453k SF.
Snapped: Brownstein Hyatt Farber Schreck shareholder Rob Kaufmann, who moderated, Holland Partner Group COO Erik Hagevik and McWhinney CEO Chad McWhinney. Is it the fifth inning—or the second—for the Denver real estate cycle? One can make a case for either, our speakers explain, but it certainly isn't the ninth. There's a lot of positive momentum in much of the metro area. Demand for office is still strong, and multifamily is going to continue to benefit from job creation, and even though there are as many as 8,000 units coming on line Downtown in the near future, multifamily landlords will still see rent growth, at least for the next three years.
Chad, Alberta Development Partners founding partner Don Provost and East West Partners managing partner Chris Frampton. Denver might not be San Francisco or Austin, but the tech industry here is growing, and it's an important driver for space absorption and part of the area's overall growth, according to our speakers. Sustainability is an element in attracting tenants to new office properties, but not a predominant factor. Features that help attract Millennials, including mixed-use components and a location that's walkable, are very important in leasing office space, and are only going to become more important. That age group might represent as many as half of the employees of most companies by 2025.
Newmark Grubb Knight Frank EVP Kevin McCabe, who also moderated, SCL Health SVP Chris Woolsey and Unico Properties regional director Austin Kane. Despite the steady movement of companies to greater Denver, our speakers stressed that the area needs more of them, and a more diverse group of Fortune 500 companies. Fortunately, Denver's made some good transportation decisions, and investments in education—thereby creating a place where people can get to and from work, and where they can raise their children. Those factors are very important to companies employing talented young workers. A lack of affordable and moderately priced housing, however, could negatively impact the inflow of people eventually.
Gogo EVP John Wade, Hines managing director Jay Despard and Etkin Johnson EVP Ryan Good. The demand exists to sustain continued spec office and industrial development, the speakers predict. The average age of Downtown office buildings is 32 years now—leftovers from the oil boom ahead of the '80 oil bust—and there's a population of tenants who prefer newer buildings. Newer properties developed in LoDo and near Union Station are now full, with Amazon driving a lot of that leasing. Energy slump or not, the appetite is there for higher-quality, more creative space in Denver.
The audience of about 250 gathered in raw space at the EOS Campus at Interlocken, which Hines developed and owns. According to Newmark Grubb Knight Frank executive managing director David Hart, it's a LEED Platinum structure—the only multi-tenant building in the submarket with that distinction—and about 74k SF of it is currently available. The building gets about 7% to 8% of its power from solar panels, and has 18 EV charging stations, among many other sustainable features.