Tenants soaked up a large amount of office space in Denver last year, fueling a surge in renovations and new construction projects this year, primarily downtown.
“For the first time since the late 1990s, we are talking about speculative office development in Denver,” Nicholas Pavlakovich, executive director of Cushman & Wakefield Colorado, recently told a gathering of the Downtown Denver Partnership.
The metro area absorbed 3.2 million square feet of office space last year, its best showing since 4.1 million square feet was absorbed in 2000, according to Grubb & Ellis Co.
But unlike 2000, when the office market was peaking, commercial real-estate brokers expect demand will continue to grow.
In the fourth quarter, projects totaling more than 757,000 square feet of new office space were under construction, according to Grubb & Ellis.
About 45 percent of that new construction is concentrated in Lower Downtown.
Opus Northwest LLC is building 300,000 square feet of office space in two buildings: a 200,000-square-foot building at 1400 Wewatta St. and a 100,000-square-foot building at 1401 Wynkoop whose tenants will include the headquarters of Chipotle Mexican Grill.
The downtown vacancy rate dropped from around 11.9 percent in 2005 to 9.3 percent in 2006, according to Cushman & Wakefield estimates.
Pavlakovich estimates downtown office vacancies could fall to the area of 6 percent this year, pushing rents up another 10 percent to 20 percent.
Average rents in the metro area rose from just above $17 a square foot at the end of 2005 to $18.21 in the fourth quarter of 2006, according to CB Richard Ellis.
Rents are averaging above $22 a square foot downtown.
With rents rising, the Downtown Denver Partnership is going on the offensive to retain employers, with plans to interview about 30 companies.
“We will do our best to make sure they stay in the Central Business District,” said Sherman Miller, executive managing director and Western Group leader for Cushman & Wakefield of Colorado, who also heads the partnership’s economic-development council.
One reason for the wave of construction has been a surge of buying by outside investors who have purchased profitable opportunities. Over the last two years, nearly two-thirds of downtown’s buildings have changed hands, Grubb & Ellis estimates.
It’s likely that the new landlords will invest to spruce up their holdings, especially those built in the late 1970s and early 1980s that are showing their age.
Among the larger renovations is that of the former Mountain Bell headquarters at 1001 17th St.
The space released from that one renovation will offset a quarter-and-a-half of leasing activity in the downtown area, estimates Errin Welty, research manager at Grubb & Ellis in Denver.
Outside downtown, office markets enjoying the strongest rebound are northwest metro and the southeast suburbs.
Staff writer Aldo Svaldi can be reached at 303-954-1410 or asvaldi@denverpost.com.
OFFICE BUILDING BOOM IN DENVER
1900 16th St.
Developer: Trammell Crow Co.
Designer: David Owen Tryba Architects
Project: 335,000 square feet
Tenants: None yet
Opening: Late 2008
1400 Wewatta St., 1401 Wynkoop St.
Developer: Opus Northwest
Designer: Shears Adkins Architects, Opus Architects and Engineers
Project: Two buildings totaling 300,000 square feet
Tenants: Chipotle headquarters
Opening: Fall 2008
1515 Wynkoop St.
Developer: Hines
Designer: Hartman-Cox Architects
Project: 260,000 square feet,
eight stories
Tenants: None yet
Opening: October 2008
