Investments in Denver real estate reached a record $2.9 billion this year with nearly 20 transactions each topping $30 million.
Investors tend to prefer retail properties, but demand for office buildings is growing because of an anticipated spike in lease rates, said Patrick Devereaux, director in Cushman & Wakefield’s capital-markets group.
Cushman & Wakefield presented its year-end review and forecast of the area’s investment, office and industrial real estate trends Thursday.
When the office-vacancy rate drops to between 14 percent and 16 percent – nearing “equilibrium” – rents will rise by about 8 percent. The current office-vacancy rate is 17.2 percent.
“Investors are trying to buy assets now,” Devereaux said. “When the market gets to equilibrium is when you can justify new construction.”
Still, the market has at least seven years to go before achieving equilibrium, said Candis Hewitt, executive director at Cushman & Wakefield. There are more than 30 large blocks – 100,000 to 200,000 square feet – of vacant space in the Denver market.
With so much vacant space available, it’s hard to win financing for new office projects.
Privately held Cherokee Denver LLC wants to put up to 1 million square feet of offices on the former Gates Rubber Co. site, Hewitt said. But without tenants to occupy blocks of space that are 100,000 square feet or larger, it’s not worth starting that project.
There’s not as much excitement in the industrial real-estate sector, said Mitch Zatz, a director at Cushman & Wakefield. Vacancy rates are down to 8.8 percent, and lease rates are flat at about $4 a square foot triple net. A triple-net lease is when the tenant pays rent as well as taxes, insurance and maintenance.
But with construction costs increasing, companies are snapping up existing buildings faster. Zatz said a 120,000-square-foot building costs about $114 a square foot to construct, compared with $90 a square foot just a few years ago.
Staff writer Margaret Jackson can be reached at 303-820-1473 or mjackson@denverpost.com.
