Downtown Denver's Energy Footprint Shrinks To 3.2M SF From 2020
The 2022 footprint represents about 10.6% of the downtown office market, compared with about 14% two years ago, although office inventory in the area expanded by about 2M SF in that time. Additionally, the 2020 date included utilities in its count of energy-occupied real estate and did not include them in this year’s count.
Still, the new figures represent a contraction in the oil and gas industry in downtown Denver caused mainly by mergers and acquisitions in the sector, said Anthony Albanese, senior vice president at CBRE.
Fluctuation has been the name of the game for oil markets for several years, beginning well before the pandemic, but the typical swings experienced by all kinds of commodities became more extreme with its onset. Shortly after lockdowns and travel restrictions took effect in early 2020, crude oil futures dropped into negative territory for the first time on record.
Low demand plagued the industry for much of 2020, but as vaccines proliferated and Covid cases waned in 2021, oil prices returned to something more akin to pre-pandemic norms. Then, when Russia invaded Ukraine in March 2022, oil prices shot to record highs and a month later remain elevated at more than $100 per barrel.
The volatility caused a surge of mergers last year in the oil industry, with couplings valued at $1B or higher reaching the highest level since 2014.
Those mergers impacted companies with a presence in downtown Denver, causing them to downsize their spaces, which has led to trouble for some energy-heavy buildings, like the Denver Energy Center, which is moving toward foreclosure proceedings after its owner stopped paying on its loan.
But the consolidations were not exactly a surprise to those most tuned in to the oil market and its impact on Denver.
“The industry has seen these consolidations coming for a number of years to help stabilize production and price,” Albanese, a tenant rep broker who focuses in part on the energy industry, told Bisnow.
He expects that the market should see some stabilization at its current footprint downtown, now that the spate of mergers has seemingly peaked. And, the mergers haven’t been all bad news for metro Denver.
The recently announced purchase of Great Western Petroleum by Denver-based PDC Energy for $1.3B, for example, will give PDC the capability to vastly increase production after the deal closes later this year. PDC is expected to grow its headquarters with a new location in Denver’s Granite Tower as well.
Additionally, energy companies, in general, returned to the office sooner and in greater numbers than some other industries.
“Oil and gas has embraced the concept of flexibility within the hybrid work model,” said Chris Wiley, principal at Colliers International Denver. “That will continue to be the case going forward.”
Both brokers emphasized the fact that energy companies largely have maintained a more traditional office design while other industries shifted toward open-plan offices and concepts like hotdesking before the pandemic. The prevalence of individual offices makes it easier to maintain social distancing, and the fact that employees are accustomed to the separation means they can more easily transition back to in-office, collaborative work.
With respect to the most recent turmoil in the global oil market caused by the Russia-Ukraine War, Wiley pointed out that oil and gas executives aren’t easily spooked. Most of them are seasoned professionals who are prepared for the market shocks and uncertainty that come with the territory in the energy business.
“The oil and gas community is very intelligent. They’ve seen these fluctuations in the market over their careers. I don’t think there will be a knee-jerk reaction, but rather a strategic approach to what they think the landscape is going to look like going forward,” Wiley told Bisnow.
The office market in metro Denver has steadily diversified since the 1980s when energy companies made up as much as 50% of downtown office occupancy. Tech companies, business, financial services and law firms have all made their way to Denver’s CBD, helping create a more balanced tenant roll.
But the oil and gas industry is still important to Colorado’s economy, with 69,000 direct jobs supported by it in 2019, according to statistics from the American Petroleum Institute. Further, oil and gas contributed $46.1B to Colorado’s gross domestic product, according to the 2019 data, which are the latest available.
“Oil and gas is still a meaningful component to Colorado employment, tax revenue and the downtown office market,” Albanese said.