Positive Growth in Denver's Office Market

The consistent growth in the Denver real estate market is no surprise, but many are wondering if the growth will remain constant or eventually collapse. One key area of growth is the office market. A number of large national and international companies have either moved their headquarters or opened new offices in Denver, making the demand for large office spaces higher than before. Data from the Third Quarter 2018 CoStar Report summarizes Denver's office market activity over the last 12 months.

Net Absorption Rates

Net absorption rates for the third quarter of 2018 for the Denver office market were positive totaling 1,148,010 sq. ft compared to positive 1,073,450 sq. ft in the second quarter 2018, positive 1,044,682 in the first quarter 2018 and positive 258,097 sq. ft in the fourth quarter 2017. The net absorption rate in Q3 2018 are reported below:

  • Class-A Office Space = 663,685 sq ft
  • Class-B Office Space = 565,503 sq. ft
  • Class-C Office Space = 81,178 sq. ft

Office Vacancy Rates

The office vacancy rate in the Denver market decreased to 9.9% at the end of Q3 2018 compared to 10.4% at the end of Q2 2018, 10.5 at the end of Q1 2018 and 10.2% at the end of Q4 2017. Vacancies rates at the end of Q3 2018 are reported below:

  • Class-A Projects =12.5% 
  • Class-B Projects = 9.6% 
  • Class-C Projects = 4.00% 

Sublease Vacancy Rates

Sublease vacancy rates have fluctuated in 2018 going from 1,661,510 sq. ft at the end of Q1 2018 to 1,563,831 sq. ft at the end of Q2 2018 to the current level of 1,639,282 sq. ft at the end of Q3. The highest level in the last 12 months was observed at the end of Q4 2017 when the total was 1,768,053 sq. ft. Vacancies reported at the end of Q3 2018 are reported below:

  • Class-A Projects = 966,693 sq. ft
  • Class-B Projects = 660,154 sq. ft 
  • Class-C Projects = 12,435 sq. ft 

Rental Rates

Rental rates have shown no change in the last 6 months and they totaled $26.85 per square foot per year at the end of Q3 2018 in the Denver market area compared to $26.84 per square foot at the end of Q2 2018.

Constructed Office Space

There were 4,587,710 sq.ft of office space under construction at the end of Q3 2018, with three buildings totaling 93,388 sq. ft being completed at the end of the same period.

Office Inventory

Total office inventory in the Denver market was 208,298,732 sq. ft in 7,912 buildings at the end of Q3 2018. The total office inventory at the end of Q3 2018 is reported below:

  • Class-A Office Spaces = 73,063,365 sq.ft in 411 buildings
  • Class-B Office Spaces = 109,562,658 sq. ft in 4,178 buildings 
  • Class-C Office Spaces = 25,672,709 sq.ft in 3,323 building

Office Building Sales

Office building sales activity was up in 2018 compared to 2017. Sales recorded in the first six months of 2018 consisted of 63 transactions totaling $1,142,160,785 with an average price per sq. ft of $237.46. Sales recorded for the same period in 2017 consisted of 65 transactions totaling $936,396,585 with an average price per sq. ft of $215.22.

It is safe to say with the information provided that the Denver office market it is still at a high peak and does not show signs of collapsing any time soon. It will be interesting to see what 2019 brings to the industry.