Headwinds for the office market at the national and local levels keep coming in metro Denver. But despite broad-brush challenges, a more nuanced look allows opportunities to emerge.
“I think what we need to do is start looking at the inventory that is actionable and reassess how we slice and dice the data,” Confluent Development Director of Investments and Development Cadie Crean said at a Bisnow event May 8. “Because the macro statistics aren't necessarily telling an accurate story. It’s a bit daunting, but we all know this time will pass. You’ve got to bear down and survive right now.”
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Confluent is bullish and in “an acquisition mode” on office space, Crean said during the Denver Office Update at Mile High Station. But it is important to research and be discerning on the office inventory available, she said.
Crean pointed toward not only the dramatic vacancy rates but also the mounting financial and economic pressures on landlords and developers.
“We face Energize Denver mandates, we face debt mandates, we face a slower market than we’ve seen,” she said. “In Denver right now, our office inventory is sitting at 22.7% vacancy. We are the fourth-highest vacancy in the country. Sixty percent of the vacancies reside in 20% of the stock.”
Flexible, innovative, aggressive deals appear to have the most success in today's market, Hughes Marino Executive Vice President Lindsay Brown said on the panel. He pointed to a situation where a tenant funded an entire tenant improvement package itself. The tenant received a dollar-for-dollar offset to its rent for the construction it paid for, he said.
“It was a creative way to approach something, to keep the deal alive, get the deal done,” he said. “While it diminishes the return for the landlord, the transaction happened.”
But many spaces are functionally obsolete, Unico Properties Colorado and Texas Market Leader Billy Woodward said.
“Tenants want nice space. That’s what’s bringing them back to the office,” he said. “They want to be somewhere they feel comfortable, they’re excited to go, they’re collaborative. They don’t want to go to a stuffy office building that was constructed in the ‘70s, that hasn’t been updated since 1985.”
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And when it comes to finding funding for TIs, “You’ve got to know the right lenders and you have to have a good reputation,” he said.
“You need to be someone who is serious about what you’re doing, and you need to show a good track record. But if you can do all of those things and you’re reliable source, absolutely, there’s money out there for TI.”
Even with the various challenges, some submarkets in the metro area are performing better than others. Cherry Creek is often held up as the new darling of office space in Denver.
“People feel comfortable walking around, the restaurants are packed, the garages are packed and, most importantly, the offices are packed,” Elevation Development Group co-founder and principal Brent Farber said.
The Cherry Creek Business Improvement District made an investment in 24-hour security, Farber said. Coupled with the flight to quality that has favored newer offices like those found in Cherry Creek, the neighborhood is busy seven days a week, panelists said.
The River North Arts District in the Five Points neighborhood has attracted some new tenants, such as Xcel Energy, and is generally a busy place due to a concentration of multifamily properties.
But RiNo is a tougher sell for some larger tenants, JLL Executive Vice President Janessa Biller said, although she believes RiNo has potential because of its vibrancy and newer development.
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“The transportation, the infrastructure just isn’t there,” she said. “We do a lot of drive-time analysis. The perception of RiNo is that if you’re there after dark, it’s dangerous. I think the city has the opportunity to improve on that. I think RiNo is a tougher market from a lot of perspectives.”
Cherry Creek has a Class-A vacancy rate of less than 1%, Biller told Bisnow after the panel discussion. In comparison, she said, RiNo’s vacancy rate is approaching 50% for its 2.5M SF, while the Denver Tech Center area, the region’s largest submarket at 35M SF, has a 24% vacancy rate.
David Haltom, senior vice president of the Rocky Mountain region for Houston-based Patrinely Group, said the demands seen in Metro Denver’s CRE landscape aren't a wholesale change in office culture but rather an acceleration of trends that began before 2020.
The pandemic and the reaction to it “really hit the rocket boosters of those preexisting trends, a focus on communications technology, the ability to work from anywhere, the recognition on the side of employers and office developers and landlords that those trends needed to be recognized and optimized within an office context,” he told Bisnow.
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