A number of tenants needing large blocks of space have been exploring the southeast Denver office market for months.
But it’s unclear whether the surge in those looking for space is a sign that businesses are increasingly confident in their long-term prospects or whether they’re using the effort to gain leverage — and better deals — from their existing landlords.
“You never know the answer to that question,” said Jim McGrath, senior vice president and branch manager at Studley, a brokerage firm that represents tenants. “A lot of tenants look around to see what’s out there. They can always leverage a renewal. Most landlords are going to do whatever they can to keep a tenant in their building because nobody wants vacancy today.”
Companies reportedly in the market for new digs include the aerospace firm United Launch Alliance, known as ULA; commercial insurance firm CNA; payment processor TransFirst; movie theater advertising firm National Cinemedia; health care companies Catholic Health Initiatives and United Healthcare; online educator eCollege; financial services company Charles Schwab; and Internet service provider WildBlue.
They’re generally looking for spaces ranging from 50,000 square feet to 150,000 square feet. ULA could be in the market for as much as 450,000 square feet.
“There are a number of fairly sizable tenants out there,” said Bob Whittelsey, principal of Colliers Bennett & Kahnweiler Inc. “However, we have not seen the floodgates open and any executions actually happen.”
Of the 33 million rentable square feet in the southeast market, 17.5 percent is vacant, according to a second-quarter market report by CB Richard Ellis. The average asking lease rate is $19.47 a square foot.
Large blocks of space are available at Shea Properties’ Maroon V, Opus Northwest’s Parkside, Alberta Development Partners’ Streets at Southglenn and Lowe Enterprises’ 198 Inverness.
“But the trend right now is the existing landlords come in at the 11th hour and do whatever it takes to renew,” Whittelsey said. “That’s why we haven’t seen a lot of relocations.”
Tenants now are able to negotiate lease rates that are up to 20 percent below median asking rates, which have declined for the past several quarters, according to a report by Frederick Ross Co.
Ross projects a 10 percent to 15 percent year-on-year decrease in asking rates by the end of 2009.
Even so, there have been just three deals over 10,000 square feet since the first of the year in the southeast market, Whittelsey said. They were IQNavigator, Jacobs Engineering Group Inc. and Holland & Hart LLP. Other companies have been tending to stay put and renew their leases, Whittelsey said.
“Companies are making short-term decisions for long-term viability,” he said. “We’re seeing an erosion of property values, an erosion of rents and a real battle for any new tenancy. At the end of the day, that tenancy is tending to renew.”
Tenants that have renewed in the southeast include United Car Care, Lockton Insurance, Shell Oil, Smith-Barney, Haliburton and Fresenius Medical. All were in the 30,000- to 80,000-square-foot range.
Many of the companies also are considering markets other than the southeast. Kidney-care giant DaVita, for example, is also looking downtown as it relocates to the Denver area and TransFirst is considering the northwest. Qwest, which occupies 850,000 square feet downtown, has said it’s looking at buildings throughout the metro area.
Landlords must be willing to deal to sign new tenants, said Todd Roebken, managing director of Jones Lang LaSalle. Black Hills Energy and Policy Studies Inc., a child-support enforcement consultant, recently signed deals at Hines Interests’ building at 1515 Wynkoop, joining Van Gilder Insurance to essentially fill the building.
“Hines got aggressive,” he said.
Margaret Jackson: 303-954-1473 or mjackson@denverpost.com
