A tight office market and the opening of T-REX light-rail lines are spurring the development of more than 1 million square feet of speculative office space in metro Denver’s southeast market.
So far, only two of the six buildings are under construction: John Madden’s 285,000-square-foot Palazzo Verdi at 6401 S. Fiddler’s Green Circle, and Westfield Development’s 150,000-square-foot One Lincoln Station at Interstate 25 and East Lincoln Avenue.
Trammell Crow Co. announced Wednesday it would break ground by year’s end on a 120,000-square-foot building near I-25 and East Belleview Avenue in Continuum Partners’ mixed-use development at Belleview Station.
The other three are in various stages of development and planning.
During the past few years, a downturn in the office market has enabled tenants to relocate from older buildings into newer Class A space.
“We’ve had a flight to quality,” said Todd Roebken, managing principal of Cresa Partners, a tenant-representation firm. “We had tenants that were able to move into Class A buildings at close to the same rates they were paying in Class B buildings.”
That pushed the vacancy rate for Class A space to a seven-year low of about 8.5 percent, said Jim McGrath, senior vice president and branch manager of Studley, another tenant-rep firm.
“When we get below 10 percent is when we can start to support new product,” McGrath said. “The hard part is for anybody to predict what the future demand is.”
But based on discussions they’re having with tenants, brokers representing the buildings don’t seem concerned that too much space is being developed.
“The reason there’s so much activity on these buildings is that we’re saving prospective tenants a considerable amount of money,” said Bob Whittelsey, principal and senior vice president of Colliers B&K, which is handling leasing for Palazzo Verdi.
“The buildings are more functional than those built in the ’80s, plus they have better mechanical systems and infrastructure that is more suited to today’s business. A 100,000-square-foot user in an ’80s building could occupy 80,000 square feet in a newer building and the rent wouldn’t change, even though the cost per square foot goes up.”
Light rail is another big selling point.
“As tenants look at expiring leases, being near a light-rail station is going to be attractive, particularly for companies that have a downtown presence,” said Bill Mosher, area director for Trammell Crow Co.
With all the new development, workers probably will use the light-rail system to travel within the southeast market, said Peter Culshaw of Shea Properties, which is planning a 200,000-square-foot speculative office building at the Arapahoe Road station.
“I don’t think it’s all about just going downtown,” Culshaw said. “You might take a train to Park Meadows for lunch. You need to give people a fun reason to jump off the train.”
Alberta Development’s Southlands mixed-use project at E-470 and East Smoky Hill Road serves a slightly different market than the I-25 corridor. It includes about 128,000 square feet of purely speculative office space above shops and restaurants and is 50 percent occupied after opening in November, said Whittelsey, who also is handling leasing there.
“We are consummating a lease every week or every other week,” he said. “It’s really driven by service providers such as insurance, financial services and medical, and people who want to be in and around the community.”
Corporex Colorado, which won’t build a purely speculative building, has a vacant parcel next to its office building at 188 Inverness Drive West where it can develop up to a 200,000-square-foot office building. It’s evaluating whether it should move forward with the building, said company president Kim Koehn. Corporex would expect to have the building 30 percent preleased before breaking ground. Koehn is talking to prospective tenants.
“Assuming we can get the design and pricing to a point where we’re comfortable and the market is still strong, we’ll go ahead,” Koehn said.
Several other office projects in this area are being considered.
Shea also is considering a 90,000-square-foot office building at South Meridian Boulevard and Maroon Circle, Culshaw said.
And CarrAmerica has two building sites within Panorama Corporate Center that can accommodate a total of 256,000 square feet. The Washington, D.C.-based real estate investment trust is considering building at least one of the buildings, which is about 40 yards from the Dry Creek light-rail stop, said Tom Lee, senior managing director of Frederick Ross Co.
“It’s fully designed and ready to go, but we haven’t made any commitments at all on moving forward,” he said.
Staff writer Margaret Jackson can be reached at 303-954-1473 or mjackson@denverpost.com.
