Grubb & Ellis Co.'s researchers say "despite muchhand-wringing nationally over the future direction of the economy,Denver's office market showed no signs of slowing during firstquarter." CB Richard Ellis is a little more reserved in itsanalysis: "Despite some pessimistic economic projections, Denver'soffice market continues to post stable results and encouragingfundamentals." The CBRE report does caution that "as turmoil in thedebt and housing markets continues to captivate headlines, thehealth of Denver's commercial real estate markets is beingincreasingly examined."

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CBRE tallies Denver's total inventory at more than 103 millionsf while Grubb & Ellis tracks a bit more than 100 million sf,with about 22 million of that in the Downtown. Grubb & Ellispegs the direct vacancy rate in the overall market at 14.7% whileCBRE lists it at 12.5%, but the two big brokerage houses both agreethat the overall availability is more like 17%.

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CBRE, in fact, sounds some notes of concern about Denver inspite of the market's generally lucky results so far. "The increasein available sublease space has the potential to threaten theoverall stability of the Denver market, for as this space isconverted into direct vacant space, it will ultimately result innegative absorption," the team concludes in its latest report.

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Average lease rates continued to rise in the first quarter inDenver as they did in a number of other office markets around thecountry, reaching $20.44 per sf per year in the region, an increaseof 40 cents on a year-to-year basis. What remains to be seen iswhat concessions that building owners will offer along with thosehigher rates, which could lower effective rates. Nonetheless,CBRE's team notes the average lease rates in Denver remain veryaffordable in comparison to other US metros. Of the markets thatCBRE tracks, Denver posted the third lowest average rate.

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Construction, though, is now a concern in Denver. There is 3.4million sf under construction throughout the metro area andnumerous other projects at various stages of planning. The markethas been absorbing all new space in recent years, but with theslowing of the economy, market-watchers are expecting deliveries tooutpace absorption, especially in suburban markets.

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In the Downtown market, Grubb & Ellis' team recorded 377,292sf of positive absorption in Q1--almost entirely from existingcompanies' expansions. That absorption total should "help buoy the2008 year regardless of further economic direction," the teamforecasts.

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The Santa Ana, CA-based firm pegs the vacancy rate at 11.6% withrelatively little sublease space in the Downtown district, whereclass A rents of $33.30 per sf per year are considerably higherthan the metro average. Vacancy is only 2.8% in the class Abuildings, but it jumps to 14.5% in class B space and 16.8% forclass C. Class B rates are $5 per sf less per year and class C is$12 per sf less.

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According to the two reports, working in Denver's favor are adiversified industry base, strong energy sector that continues toexpand and other growing, or at least stable, industries like law,defense, aerospace, government and technology. The city also hasbeen blessed with good job growth and an steadily decliningunemployment rate since 2003, when unemployment passed 6.4%. Recentnumbers show the Denver-Boulder unemployment rate at 4.8%, slightlylower than the national rate of 4.9%.

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The metro had added 26,400 jobs when CBRE was pulling togetherits report. The gain "indicates a steady growth trend which isexpected to continue through the long-term," the Los Angles-basedcompany's team concludes.

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