Denver Office Market Improves With Recovering Energy Prices
Even though the downturn in the energy industry in the fall of 2014 forced many companies to vacate their office space, there is a crop of newly formed energy companies stepping in to backfill the space.
Although there was a global oversupply of oil and gas, rather than pulling back on production, OPEC decided to let prices plummet from around $106 a barrel to less than $50, First Vice President and co-leader of CBRE’s Energy Facilities Group Anthony Albanese said.
That caused larger energy companies to vacate large blocks of space. In 2015, 1001 17th St. saw 330K SF of sublease space come on the market when Newfield Exploration Co. closed its Denver office and WPX Energy shrunk its workforce by 8%. Much of that space has been backfilled by relative newcomers Caerus Oil and Gas, Centennial Resource Development and Nine Point Energy, Albanese said.
“We have seen a significant rebound in energy company formation,” Albanese said, noting that many energy companies come to Denver because of its central location. “Denver is a regional hub and fits right into the main production areas in the U.S.”
Today, oil and gas companies account for 4.9M SF, or 17.8%, of the downtown office market, according to CBRE’s 2017 North American Energy Trends report. Over the past year, they have accounted for more than 100K SF of negative net absorption downtown, where about 660K SF of oil and gas sublease office space is available — down from 863K SF in 2016.
Oil and gas jobs account for just 1.4% of the city’s total employment. Nearly 3,500 energy-related jobs have been cut since the downturn, though energy employment has grown again in the past six months. Denver’s economic diversity gave the city a significant cushion during the downturn, mitigating any potential severe long-term impact.
“Although we have seen a large bump of sublease space enter the market as a result of the energy downturn, we are fortunate in Denver that the timing has aligned with a strong period of population and job growth along the Front Range,” Albanese said. “Other industries, including professional services, healthcare and technology, are eager to enter or expand in our market, helping to absorb much of the residual space left by energy companies either exiting Denver or reducing their footprints.”
The real test of the resiliency of Denver’s traditional energy sector will occur between 2019 and 2022 when 55% of energy company office leases downtown totaling 2.5M SF will expire. As much as 30% of that office space could be returned to the market, which could increase the downtown vacancy by up to 3%.
Still, Albanese is optimistic.
“With oil and gas rebounding and stabilized and continuing to grow, that bodes well for the stability and strength of our downtown office market,” he said.