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Is the Denver Office Space Pipeline Outpacing Demand?

Posted by Unique News Team on March 23, 2017
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Zach Smith, Broker Associate

 

If you’ve driven past downtown Denver in the last year, you’ve probably noticed a crane or two in the sky – or thirty. It isn’t news either that Denver is seeing one of the biggest population spikes in the country. According to the Colorado Office of Economic Development, Denver’s current population of 2.7 million is expected to increase nearly 50% to a staggering 3.9 million by the year 2030. With Denver’s active-friendly cityscape and beautiful surrounding landscapes, Denver’s workforce enjoys a happier and healthier quality of life and for that reason alone, it’s obvious why so many businesses have been flocking to the area as well. Not to mention our international airport and business friendly government. Even with all the new people and businesses coming to town there is one question investors and office building owners are asking themselves: “Is the office pipeline outpacing the demand?”…not necessarily.

Denver’s highly skilled workforce has not only enticed several larger tech firms to either move or consider moving to Denver, but compared to the Bay Area or the East Coast, the cost of living and rental rates for office space in Denver are significantly lower and are attractive qualities to now-cost-conscious tech executives. Let’s think about why the Denver workforce is so talented. One reason could be that many of the graduates that are coming here for education are not leaving and are getting jobs here. It is also likely that many of these graduates are becoming entrepreneurs and starting up businesses. In 2015, Denver topped the list of venture capital funding at $800M. That was more than California, Texas, New York and Massachusetts. With regard to migration studies, it is known that in a given period the lion’s share of a migrant population from state to state are in their 20’s and 30’s. Denver’s recent and continuing population boom is rich with young educated individuals looking for jobs and/or eager to start up businesses.

In the 1980’s Denver’s industry buzz was all oil and gas. That sector’s biggest firms commanded nearly 50% of CBD’s leased office space leaving Denver exposed to the boom and bust nature of the industry. With the decline of this industry in the recent past, we’ve seen a lot of sublease space come to market though it should be noted that Encana did recently renew their 335,000 SF lease in Republic Plaza at 370 17th St. As mergers and consolidations in the oil and gas industry took place however, many of the giants have vacated the Denver market place leaving behind a staggering amount of sublease space. Market wide, Denver has roughly 1.3 million SF of sublease space available and out of that, the energy sector accounts for nearly 900,000 SF of that.

Job growth continues to be a big driver for the development of new product. According to the U.S. Bureau of Labor and Statistics, Denver came in 7th out of the 51 largest metro areas in terms of job growth. With the addition of 45,000 jobs, Denver’s job growth rate came in at 3.2%. With over 52,000 units of multi-family in the pipeline and new home construction, Denver’s residential markets are postured to receive the massive population influx. As for office inventory, the pipeline is the largest Denver has seen since 2000. “Twenty-two projects totaling 4.5 million square feet are currently under construction or renovation,” according to Newmark Grubb Knight Frank’s 4Q16 market research. “1401 Lawrence (301,130 square feet in the CBD), Industry Phase III (a 72,000 square foot addition to the co-working facility in Midtown submarket) and 8181 Arista Place (65,971 square feet in the Northwest submarket) delivered (4th) quarter.”  While this information may seem daunting, the strength in our work force’s education, the unprecedented in-migration of 20-30 somethings, and the job growth rate should offer investors a sense of comfort.

Denver continues to consistently outperform the nation in nearly every aspect of growth. Forbes lists Denver as the “Best Place for Businesses and Careers”. While the pipeline may currently be outpacing demand, the population and job growth we are experiencing here in Denver should make up for any disparity in the long run. It is a total wild card and time will tell. One thing is for sure, it has been an interesting and exciting few years here in Denver with many more on the horizon. I think it’s safe to say that we are no longer that little cowtown in the west.