Office rents in downtown Denver’s highest-profile buildings are among the cheapest of those found in comparable buildings in the nation’s largest cities, according to a study released Thursday by Studley Inc.
Last year, average total rent – which doesn’t include landlord concessions – of Class A buildings in Denver’s central business district rose to $27.21 per square foot, a 1.4 percent increase over 2003. It was the first jump in office rental rates in three years. But even that growth pegged the downtown office market, where the vacancy rate among top-flight buildings now hovers at 16.4 percent, as the nation’s fifth cheapest – behind Houston; Tampa, Fla.; Atlanta; and Dallas, respectively.
Studley limited its analysis to Class A rental deals spanning 10 years or more in central business districts.
The jump in rent didn’t necessarily put more money into the pockets of either landlords or tenants. To lure and retain tenants last year, landlords gave concessions, such as free rent and office-construction allowances, valued at $30 per square foot, a 6 percent increase over 2003. As a result, they watched their “effective rent,” or take-home pay, fall last year 5.9 percent to $12.81 per square foot – its lowest level in five years.
And despite the concessions, tenants paid effective rents of $22.77 per square foot, 12 cents more per square foot than the previous year. That increase was driven in large part by higher maintenance and electricity costs and real estate taxes.
Though Denver office real estate taxes rose 13.5 percent last year to $2.10 per square foot, they’re still the lowest in the nation, according to the Studley report.
The low tax rate, coupled with cheap rent, will help the downtown market achieve a better balance faster, said Rob Link, an executive vice president of Studley, a tenant-representation firm.
“It’s still a tenant’s market and has been for several years, but that’s changing,” he said. “Landlords don’t have to do the deals they did three years ago, when all they basically checked for was a pulse and the ability to write a check. Today, tenants with good size, credit and longevity – meaning they’ve been around for a while – will get a screaming good deal. But if you’re a startup or have poor financials, you’ll have to contend with the equilibrium that is beginning to come back into the market.”
Some landlords have significantly lowered concessions packages this year, Link said. And the market has been helped by a slowdown in new construction, he added. As a result, Link predicts that tenants will fill more downtown office space this year and that base rents won’t rise significantly, if at all, until mid-2006.
Staff writer Christine Tatum can be reached at 303-820-1015 or ctatum@denverpost.com.
