Space for rent
More than 4.3 million square feet of Denver office capacity available for sublease amid the pandemic
Call it the for- rent sign of the times. More than 3.5% of all the rentable office space in the Denver- Boulder- Aurora metro area was available for sublease at the end of September, according to the latest market report from real estate services firm CBRE.
That’s more than 4.3 million square feet of technically “occupied” but actually available real estate. At the end of March, before the coronavirus pandemic fully sunk its teeth into Colorado, 2.5 million square feet of office space was available for sublease in the metro, according to CBRE.
In a COVID- 19- shaped economy, the big jump isn’t necessarily surprising. CBRE found that office- using businesses — a segment of the economy that includes government, financial and business services and the information industries — employed 4,100 fewer people in August than they did at the same time in 2019.
Fold in the pivot to a work- from- home business model that many companies have chosen if not been forced to embrace, and you have a recipe for a 20% office space availability rate across Denver area, CBRE’s data shows. That’s a number above and beyond the 15% “total vacancy” rate CBRE tracked for the market, already the highest rate for that category in Denver since 2012.
Average asking lease rates went up 21 cents last quarter to $ 29.02 per square foot, according to CBRE. That was mainly because of new projects opening and doesn’t reflect an increase in other types of concessions.
It’s not all doom and gloom for Denver office providers, says Pete Schippits, the president of CBRE’s mountain- northwest division. There is one factor that didn’t make the market report that provides a reason for optimism: active tenants, or companies poking around in the market but not yet ready to sign a lease.
“The list of active tenants is going up at the highest rate of any market in the country,” Schippits said of Denver. “We continue to hear from our clients on the occupying side is they are going to pick a date. They do notice the detriment of not having people working together.”
There will certainly be lots of options to do so, on the sublease market and elsewhere.
There is a healthy — but not overabundant in Schippits’ opinion — amount of office space under construction in the city, 3.3 million square feet.
Of that, 2.6 million square feet is being built on a speculative basis without tenants attached, including major downtown projects including Dick Monfort’s McGregor Square and the Block 162 tower on 15th Street.
Just 9% of the speculative office space under construction downtown is preleased today. At this time in 2018, 30% of speculative office space under construction across the metro was preleased.
Schippits isn’t worried by that number either.
He said Denver has traditionally been a touch- first, lease- second market.
“There is sort of less urgency in dealmaking right now. People are being more methodical,” he said. “That’s not a bad thing.
What we’re going through now is a disruption of how we use the space itself. I think we will absolutely see a lasting impact. We will see more work from home but that won’t decrease the value of office space.”