Commercial Real Estate and Office Space Market in Colorado

Commercial Real Estate and Office Space Market in Colorado

The Centennial State is home to a prosperous and diverse industry base and ranks among the top 20 regional economies in terms of economic growth. In recent years, higher employment rates have been brought about by the expansion of the energy and technology sectors, helping foster a favorable economic climate for local businesses and investors and having a clearly positive effect on the commercial property market across the state (1). What follows are some market insights relevant to business owners, tenants, and prospective investors with an interest in the Colorado property market.

Office Space Market

There are two hubs of activity within the Colorado office market. Denver's robust economy has led to an increase in the number of jobs in the professional and business services, and this in turn has supported consistent tenant demand across the city, causing lease rates to reach record levels. Direct asking prices increased by nearly 6 per cent between 2014 and 2015, averaging $23.23 / sq ft and being pushed higher in Denver's CBD, where rental values average $32.46 / sq ft. At 11.6 per cent, vacancy rates have decreased substantially with regards to previous years, although they are expected to stabilize as new office developments become available in areas like the CBD, Cherry Creek, and Greenwood Plaza. Vacancy rates are particularly low in Midtown, Boulder, and the Gunbarrel area in northwest Denver. According to researchers at Cushman & Wakefield, the suburban districts to the southeast of Denver are likely to experience solid growth levels as more companies relocate there in search of flexible office space (2). Key office occupiers in Denver include companies in the financial, oil and gas, engineering, and manufacturing sectors (3).

Colorado Springs is another important center of activity within the Colorado office market. Vacancy rates have been declining, even if at a lower pace than those in the Denver area, and despite the area's positive net absorption levels. Market researchers have highlighted the 'flight to quality' trend that seems to dominate the local office market, as tenants look to move to larger, newer, and better equipped premises. As a result, more than half of the new office space currently under construction in the Colorado Springs CBD area is already pre-let (4).

Click here to view available office space in Denver and Colorado Springs.

Retail and Industrial Space Markets

Generally speaking, the retail market in Colorado has gone from strength to strength and has therefore helped boost confidence levels among consumers and investors. This positive environment has driven healthy growth levels in the retail property market, particularly in Denver, where a strengthened retail sector has resulted in an increase in rents and declining vacancy rates. Shopping center properties continue to be in high demand, with vacancy rates averaging 7.1 per cent but being lower for properties in strip malls (4.3 per cent) and in regional shopping centers (4.2 per cent). Other positive market indicators include an above-average amount of space under construction and higher direct asking rents, which average $14.56 / sq ft in the Denver metro area.

In addition, the strong growth levels experienced by the tourism sector in Denver have had a positive effect on the city's retail property market, particularly in areas / properties devoted to leisure and entertainment activities (5). This positive outlook is expected to persist in the medium term, as the Denver has been listed one of the top 10 best retail markets in the United States and the second best place to launch a start-up (6).

Growth is rather subdued in the Colorado Springs retail market, where vacancy rates only decreased by 1 percentage point between 2014 and 2015. Demand is especially high for free-standing retail units. Direct asking rates for retail space in this part of Colorado have increased moderately, reaching values of $11.13 / sq ft during the second quarter of 2015. Rental values are higher in downtown Colorado Springs ($14.15) and lower in the eastern areas of the city ($8.11) (7).

Tax Breaks, Business Incentives and Support

Recent surveys rank Colorado as one of the top 5 best US states for business, getting top scores across 10 categories, including access to capital, infrastructure, a business-friendly climate, and a skilled workforce (8). This positive business environment in complemented by several incentive schemes, the most important of which are:

- Enterprise Zone Tax Credits, which are available in a variety of areas that range from assistance for research and development activities (3 per cent rebates) to vacant building rehabilitation credits (covering up to 25 per cent of the costs) and tax exemptions for companies involved in manufacturing and mining (9).

- The Strategic Fund Incentive, which can help with relocation costs and is available to businesses in enterprise and non-enterprise zones devoted to job creation and retention (10).

Sources:

(1) http://www.cbre.us/research/Pages/local-reports.aspx
(2) http://www.cushmanwakefield.com/~/media/marketbeat/2015/04/Denver_Americas_MarketBeat_Office_Suburban_Q12015.pdf
(3) http://www.cushmanwakefield.com/~/media/marketbeat/2015/07/Denver_Americas_MarketBeat_Office_Q22015.pdf
(4) http://www.quantumcommercial.com/MarketReport.aspx
(5) http://www.colliers.com/-/media/files/marketresearch/unitedstates/markets/denver/market reports/1q2015retail.pdf
(6) http://www.bizjournals.com/denver/blog/broadway_17th/2014/11/denvers-retail-market-ranked-among-top-10-for.html
(7) http://www.quantumcommercial.com/upload/GE/OT/4/GE_MarketReport-4-DocFile1.pdf?ts=8/11/2015 9:06:34 PM
(8) http://www.bizjournals.com/denver/news/2015/06/24/colorado-soars-on-cnbcs-top-states-for-business.html
(9) http://www.advancecolorado.com/funding-incentives/incentives/enterprise-zone-tax-credits/tax-credit-resources
(10) http://www.advancecolorado.com/sites/default/files/Incentives/BFI_Fact_Sheets/SF_1_2015.pdf