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Opportunities blossom in Denver’s submarkets

Glendale’s tallest building, Elevate, recently sold for $35.75 million.

Andy Cullen
Partner and managing broker, Tributary Real Estate

Finding the right office space to call home is never as easy as it seems. Multiple factors – from building type to size to amenities to location – require thoughtful consideration to ensure a company finds a space that not only resonates with their mission, vision and values, but also supports employee attraction and retention.

As a state, Colorado continues to attract a highly educated workforce. At the end of 2018, the Denver metro area alone had a labor force of 1.83 million people, 45% of whom have a bachelor’s degree or higher. While the talent pool has grown, so has competition from businesses moving here to take advantage of it – think Amazon, VF Corp., WeWork, Slack, Xero and Strava.

One of the most critical factors in attracting and retaining top talent is the work environment. Companies are increasingly prioritizing employee values and preferences while navigating their real estate strategies. Unsurprisingly, at the forefront of that discussion is location.

As of the first quarter, downtown Denver had 40.3 million square feet of office space with a vacancy rate of 17.9%, hovering at a four-year low. While it is no surprise that companies are gravitating toward the commercial heart of Denver for its appeal to a younger workforce and central accessibility to the rest of the metro area, a growing number of businesses are finding reasons to grow outside of the central business district.

West Denver. Largely viewed as a sleepy submarket over the past several years, the west side of Denver is seeing a resurgence of activity. The $143.65 million sale of Denver West Business Park marks a shift in perception of what the west can offer. Located in relatively close proximity to the mountains, this submarket appeals to companies looking to attract multigenerational employees who value a more attainable quality of life, an active lifestyle and a short commute.

As of the first quarter, the area offered 15.7 million sf of office space, up 1.8% from the prior period. With a vacancy rate of 10.1%, it is clear this submarket remains desirable, especially with an average rental rate of $22.68 per sf (compared to downtown Denver’s average rental rate of $34.59 per sf).

Northwest corridor. Offering 30.5 million sf of office space with a 12.8% vacancy rate, the Northwest corridor is home to several big name companies including Vail Resorts, Webroot (recently acquired by Carbonite), Sierra Nevada Corp. and PopSockets. One of the newest additions to this lineup is Crocs, which will relocate to Broomfield from its Niwot headquarters in 2020.

The biggest appeal for companies located along the Northwest corridor is access to highly educated talent pools in both Denver and Boulder. With an average rental rate of $27.44 per sf, this corridor also offers a distinctly Colorado experience at a lower price point than either downtown Boulder or Denver. With views of the Front Range and hundreds of acres of open space, this area is perfect for employees looking for an outdoor lifestyle with easy access to biking, hiking and running trails.

Glendale/Cherry Creek. The area from Cherry Creek North to Colorado Boulevard and Interstate 25 has seen some notable activity in the first part of 2019, from the opening of Amazon Books in the Financial House building in Cherry Creek North – which was fully leased upon delivery with record-breaking rates – to the sale of Glendale’s tallest building, Elevate, for $35.75 million.

With 14.4 million sf of office space, the area had a 12.4% vacancy rate as of the first quarter. Offering a variety of building types and spaces, this area remains a viable option for many tenants. While the average rental rate in this area is $27.30 per sf, there is a significant price difference between newly built Class A office space in Cherry Creek North and second-generation buildings along Colorado Boulevard, which creates a dynamic mix of businesses that call this area home.

Denver Tech Center. While it may not boast the urban appeal of downtown, the Denver Tech Center is equally significant from a commerce perspective in the metro area. Thanks to the influx of major corporations over the years, south Denver remains a major commercial hub.

Kiewit Corp., a Fortune 500 construction and engineering company based in Nebraska, recently announced it selected Lone Tree as the location for its new regional office. Real estate company Schnitzer West also acquired a site across the street from Fiddler’s Green Amphitheater in Centennial that is entitled for up to 1 million sf.

As of the first quarter, this area offered 34.8 million sf of office space, with an average rental rate of $25.93 per sf. Among the geographies covered in this article, this area boasts the highest vacancy rate at 18.7%, creating ample opportunity for tenants to negotiate favorable lease rates. Similar to the Northwest corridor, the major appeal of the Denver Tech Center and surrounding areas is access to a highly educated talent pool, lower cost of living and top school districts.

As Denver continues to grow, these areas outside of the CBD will become increasingly significant for the city’s economic vitality. With each market offering its own unique draws, companies have more attractive opportunities than ever to find the perfect fit for their employees and their business.

Featured in CREJ’s June 2019 Office Properties Quarterly

Edited by the Colorado Real Estate Journal staff.