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Metro Denver’s commercial real estate “Exceeds Expectations” in Q3 2013

Posted on: Feb 5 14

by: admin

From the Denver Business Journal

Metro Denver’s commercial real estate market continued “exceeding expectations” in the third quarter with its office submarket on track for a fourth year of “continuous expansion” and its industrial sector experiencing new development and pre-leasing levels not seen here in more than 10 years, according to Newmark Grubb Knight Frank’s third-quarter report.

Market-wide office vacancy stood at 16.3 percent, down 1.4 percent from Q3 2012’s average of 17.7 percent, the report states. That’s the 15th quarter in a row of declining vacancy.

Office market absorption levels — space leased versus space vacated — for Q3 are already out-pacing the full year of 2012 with more than 1 million square feet of positive absorption through September. But that rate slowed in the third quarter, compared to Q1 and Q2 ­— particularly in the Central Business District and the southeast market, where a financial services company’s bankruptcy caused the release of 75,000 square feet of office space.

“2013 is well on track to be the fourth consecutive year of continuous expansion with over 1 million square feet of absorption,” said NGKF’s Jamie Gard, executive managing director and office specialist. “Although brokers would like to see a boom year, with absorption of 2 or 3 million square feet, the Denver office market’s steady and sustainable growth bodes well for continued expansion in the future. Steadily rising lease rates spurred companies to lease more space over the last few years in preparation for increased staffing, and job growth numbers will be watched carefully in the coming months.”

Class A office lease rates increased 10 cents in the CBD to $30.85 per square foot from Q2, while Class A rates in the southeast submarket remained flat at $24.50 per square foot per year.

The industrial sector saw a Q3 vacancy rate of 6.1 percent, down from Q2’s 6.8 percent and from Q3 2012’s 8.1 percent. There was more than 1.3 million square feet of positive absorption in Q3 alone, bringing the 2013 level to 3.1 million square feet “on target to beat 2012’s total absorption of 3.6 million square feet.

The report noted the industrial space construction surge, with the United Properties Colorado LLC’s Enterprise Business Center at Stapleton breaking ground in July and already seeing pre-lease activity as Swire Coca-Cola USA, a subsidiary of Swire Pacific Ltd. of London, grabbed 257,000 square feet for a distribution center here.

“The supply for Class A buildings is so tight that the market is experiencing pre-leasing in speculative warehouses for the first time in over a decade,” the report states.

“The third quarter posted continued absorption for the seventh straight quarter driving vacancy rates down to near record levels,” said Mike Wafer, executive managing director and industrial specialist. “Fourth-quarter 2013 is poised to continuethis trend with significant new lease and user sale activity.”

Wafer said available industrial space in the City and County of Denver is being snapped up in anticipation of legal retail marijuana sales here starting as early as Jan. 1.

“The highest demand has been in the City and County of Denver, where there has been an unprecedented rush for industrial buildings – ironically for marijuana grow facilities,” Wafer said.

The retail sector showed vacancy rates of 7.6 percent, down from Q2’s 7.8 percent level and down year over year from 2012’s year-end rate of 8.2 percent, the report states.

There was 628,000 square feet of retail space absorbed in Q3, bringing the 2013 total through September to 1.3 million square feet ­— topping the entire 2012 absorption level of 1.1 million square feet.

“National and regional retailers continue to show firm interest in Denver’s retail market, expanding where there is opportunity with good locations and demographics,” said Frank Griffin, managing director and retail specialist. “New national and regional stores drove over half of the quarter’s absorption. However, there are signs of expansion everywhere – in all submarkets, and among national, regional and local retailers. The Denver retail market is the healthiest it’s been in the past five years, with sound expansion, delivery of pre-leased projects and vigorous growth in underlying fundamentals.”

NGKF is a part of New York City-based BGC Partners, Inc. (NASDAQ: BGCP).

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