COMMERCIAL Office/Retail Space
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Kyla Tyler, REALTOR
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Cell (303) 905-7731
RE/MAX Unlimited, Inc.
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3300 South Parker Road Suite 100
Aurora, CO 80014
Fax (303) 369-6959
Denver Metro Commercial Association of Realtors DMCAR
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Metro Denver’s commercial real estate market ended 2009 still hurting from turmoil in the financial markets and job losses — but key indicators say it hit bottom last year and is now poised for a slow recovery, according to a new report by CB Richard Ellis Inc.
In the fourth quarter, Colorado’s job losses continued to be 20 percent lower than the national average, and the recession showed signs of losing its punch here. The state lost roughly 100,000 jobs in ’09, according to a University of Colorado at Boulder economic analysis.
“[But] because real estate is a trailing indicator, particularly commercial real estate, the road to recovery will likely be protracted until there is job growth and overall [economic] recovery,” CBRE’s fourth-quarter 2009 MarketView report said.
Industrial market
The industrial market — the metro area’s largest commercial real estate sector by property type, with nearly 225 million square feet — continued to fare relatively well in 2009’s last quarter because of its unglamorous, but necessary, nature. Industrial real estate includes warehouses, distribution centers, manufacturing buildings and hybrid office/industrial footage called flex space.
“It’s not doing great, but it’s also not doing that badly. … There’s activity in the market, though not at 2007 levels,” Jim Bolt, executive vice president and industrial broker at CBRE, said of the local industrial market. “It’s a meat-and-potatoes business, and it’s not all that bad.”
The industrial market had one of the metro area’s largest commercial real estate sales for the period, with Denver-based ProLogis (NYSE: PLD) selling a nearly 500,000-square-foot portfolio of three fully leased metro-area buildings for nearly $19 million in December. The buyer was Cobalt Capital Partners of metro Dallas.
The industrial market’s total vacancy rate, including sublease space, increased 8.8 percent in the fourth quarter from the year-ago period, according to the CBRE report.
The market had negative absorption of 272,000 square feet, but that was less than the 324,000 square feet of negative absorption for 2008’s final quarter. Absorption is the change in occupied space from one period to another.
Asking industrial rents averaged $5.95 per square foot per year, also down year over year, from $6.25.
The industrial market had roughly 634,000 square feet of new space under construction at the end of 2008, but there was no new space being built at the end of ’09.
“Nothing new is getting built,” Bolt said. “By the second quarter of [2010], we’ll be out of new speculative space.”
If demand for new space picks up this year, it will drive up rents — which, in turn, will drive new construction.
Office market
Continued strain on the job market caused metro Denver’s office market to experience 250,400 square feet of negative absorption in the fourth quarter, but that was down from negative absorption of 284,675 square feet in 2008’s fourth period, according to CBRE data. A few submarkets even had positive absorption at the end of ’09, including Aurora, Cherry Creek and the northeastern metro area.
The total office vacancy rate increased to 17.9 percent in the fourth quarter from 15.5 percent for the same period of ’08.
Despite lower absorption and higher vacancies, the office market had more activity from tenants at the end of last year.
“We saw office leasing activity pick up, driven by deferred decision making in the first six months of 2009,” said Sam DePizzol, senior vice president and tenant representation broker at CBRE. “Companies were moving ahead cautiously, making leasing decisions that had to be made.”
Some tenants still are looking for significant amounts of office space this year, according to CBRE. The federal government’s General Services Administration wants 300,000 square feet in downtown Denver and the western metro area near the Denver Federal Center. Health Grades Inc. (NASDAQ: HGRD) of Golden, which rates hospitals and other health care facilities, is hunting for downtown office space as well.
Average asking rent decreased to $20.02 in the fourth quarter from $21.16 year over year.
“[Rents] fell pretty significantly in 2009, and we don’t see them coming up in 2010. … We’ll see more normal office leasing activity this year, but no rise in rents at all,” DePizzol predicted.
One of the fourth quarter’s largest office building sales was Boulder-based Spectra Logic Corp.’s $5.7 million purchase of the building at 6285 Lookout Road in Boulder