January 22, 2008 3:05 PM

Transwestern report shows strong office market

The Denver-area economy and the local commercial real estate market ended the fourth quarter and 2007 on a strong note, although "mild deceleration," has begun, according to the Transwestern Outlook report released today.
The report, by Delta Associates of Alexandria, Va., in consultation with Transwestern, found the Denver office market showed net absorption of 483,000 square feet in the fourth quarter, and 1.9 million square feet of last year.
Available sublease space declined by 172,000 square feet in 2006, and now represents only 1 percent of the standing inventory.
For example, the Central Business District's office vacancy rate was 10.4 percent at the end of the year, according to the report, and it only rose to 10.8 percent with sublet space included.
Downtown absorbed 661,000 square feet in 2007, 50,000 square feet more than the 611,000 square feet in 2006.
However, in the fourth quarter of 2007, the CBD showed negative absorption of 60,000 square feet.
Absorption measures the change in leasing activity over a period of time. So if a company was leasing 100 square feet and moved into 75 square feet, it would show negative absorption of 25 square feet, the difference between the two numbers. Companies might take less space because they are downsizing, or, which is increasingly the case, they're moving into more efficient space, so they don't need as much space to house their employees.
The overall office vacancy rate was 12.6 percent at year-end, down from 13.2 percent a year earlier.
The Transwestern Outlook report offers this advice, given that it expects market conditions will remain strong this year.
Tenants: Larger users should lock in lease rates before rents rise further.
Developers: Construction should be underway to deliver at peak of the cycle in the coming 12 months.
Institutional investors: Purchase buildings with lease rollovers approaching. Consider selling select assets while cap rates remain low.
Opportunity investor: Seek buildings with vacancy or below-market rents. Sell renovated assets.
The overall Denver-Boulder metro area's economy out-performed the nation as a whole.
Payroll employment increased by 1.6 percent – 21,900 in the year ending in October, the latest figures available. That compares to a 1.2 percent.
Although mathematically that's a 33 percent increase over the national employment rate, I don't think anyone is calling Denver a boomtown.
Along the same lines, the unemployment rate locally stood at 3.5 percent, almost 35 percent lower than the U.S. employment rate of 4.7 percent.
The tech/telecom sector saw modest growth last year, up 0.7 percent, or 400 jobs, according to the latest dat.
Showing more growth was the hospitality/tourism sector, growing 3.1 percent, adding 5,600 jobs.
Even the financial, professional and business services sectors "remained relatively strong, despite the collapse of the subprime mortgage industry."
And the report quoted a report by the consulting firm Booz Allen Hamilton, which found that Colorado's oil and gas industry generated $22.9 billion statement in 2005, or about 6.1 percent of the gross state product.

Posted by John Rebchook at 3:05 PM | Comments (0)