Office lease rates hit all-time high in Denver metro in third financial quarter

The inking of some big leases in recently completed Class A buildings in the southeast has helped drive office rental rates to an all-time high in the Denver metro area, according to market watchers. And there is little reason to believe rents will be coming down soon in a highly competitive employment market where companies are using snazzy work space to attract talent.

The direct asking lease rates for office space in Denver metro area hit $26.38 per square foot in the third quarter of 2017, according to a report released this week by CBRE Research. That’s up from $26.15 per square foot in the second quarter, and a 3 percent rise over the same point in 2016, according to the commercial real estate firm. One driver is the ongoing economic boom in greater Denver, with 34,838 jobs added across all industries through August 2017 over the first eight months of last year.

“Job creation drives demand for office space and that’s the story here,” said Matt Vance, director of research analysis for CBRE in Colorado. “That’s not a surprise to anyone here living it.”

What may be surprising is which part of the metro area drove the rise to record status. Office rents downtown ended the third quarter at $33.94 per square foot, 1.4 percent higher than in the same quarter in 2016.But rent in the southeast submarket, which includes the Denver Tech Center and the rest of the south Interstate 25 office corridor, hit $25.04 per square foot, a 4.8 percent increase year to year.

A major driver there was big employers moving into new Class A buildings. Western Union was the headliner, signing a lease for more than 245,000 square feet in the recently completed One Belleview Station high-rise. In total 717,380 square feet of office space was soaked up in the southeast in the quarter. John Marold, a senior vice president with CBRE with years of experience in the southeast, said that since 2014 there have been 13 instances of tenants of greater than 100,000 square feet relocating in the area, usually to newer Class A space. He said competition for talent in an employment market that CBRE is tracking at 2.1 percent unemployment is contributing.

“A lot of these companies, I don’t think they feel that they’re capable of competing for that talent pool in their older buildings,” Marold said. “There has definitely been a trend of moving to a nicer product.”

Downtown rents could surge in coming quarters. More than 1.5 million square feet of new office space, including the 670,000-square-foot Class A 1144 Fifteenth tower, are under construction. CBRE researchers said that speculative building, set to open to tenants next year, is already 80 percent pre-leased.

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