A new wave of technology tenants has emerged in the Denver market, and where they’ll land depends on where they can find space.
Seattle-based Amazon just announced it will expand its Denver Tech Hub with 98,000 square feet of Class A office space – and 400 new employees – at 1515 Wynkoop in Lower Downtown. Other tech companies – mostly from Northern California – are looking for office space in tech-centric submarkets including LoDo, Denver Union Station, River North and Platte Street, according to Cushman & Wakefield Executive Managing Director Steve Billigmeier.
Many see Denver as a logical second “hub.”
Steve Billigmeier
“I think it’s definitely the lifestyle. They see a lot of similarities between San Francisco and Denver – the culture and the community – and it’s an easy justification to make that leap. It’s obviously the educated workforce,” he added.
“In working with some of the country’s fastest-growing startups, we are often asked to evaluate Denver as a potential cost arbitrage opportunity,” added Elisa Konik, chair of Cushman & Wakefield’s Emerging Tech Advisory Group. “Software developer salaries in the Denver metro can be a 20 to 25% discount when compared to San Francisco salaries,” she said. “While competition for tech jobs is certainly on the rise, Denver still has one of the country’s strongest labor pools, which makes it an attractive and approachable relocation market.”
Denver’s cost of living – while still less expensive than the Bay Area – is becoming “more and more challenging” when compared with some competing markets, according to Billigmeier. Availability of office spaces 20,000 sf and larger also is tightening.
“I think if you’re over 50,000 square feet, you’re going to have a very hard time finding space come end of summer in those key tech submarkets,” he said, noting that within the next 60 to 90 days, “a lot of those are going to be gone.”
There are opportunities in that size range in Uptown, where some tech companies have transformed second-generation office space into edgy, open work environments. “But in the areas where the tech companies gravitate toward, that’s where it’s really getting tight,” Billigmeier said.
Buildings under construction in those neighborhoods will “basically be leased” by the end of the year. “The question is how much of the proposed projects are going to break ground to provide additional supply in 2020-2021.”
Lack of office space hasn’t discouraged tech companies from coming to Denver, however.
“I think that could be an issue in the future,” said Billigmeier, who is working on a couple of deals in Austin, Texas, which is “extremely constricted on supply.”
But, “If it takes you a year and a half to two years to get into 50,000 square feet in Austin now, some of these companies that may have gone to Austin may now be coming to Denver because you can get into those spaces in 120, 180 days. But I don’t think that’s going to last too much longer.”
According to Cushman & Wakefield’s first-quarter Marketbeat report on the Denver office market, approximately 600,000 sf of office space was absorbed metrowide in the first quarter, due largely to the addition of new inventory delivering 75 percent preleased, as well as WeWork continuing to occupy previously leased space.
Absorption should continue its positive trend through the rest of the year with Cochlear, Slack Technologies, Amazon, WeWork and others occupying previous leased space. Although Cushman & Wakefield doesn’t expect the same “torrid pace” of absorption as occurred in 2018, “With the influence of tech growth throughout the Denver metro area, net absorption should remain strong,” the report said.
Lower Downtown and the Central Platte Valley had the highest direct average gross rental rates, ending the quarter at $46.01 per sf, compared with a $36.79 per sf average in the central business district and $28.59 metrowide.
