Marcy Moneypenny on the Denver Office Market

GlobeSt.com caught up with Marcy Moneypenny, principal and managing director – Denver

Avison Young to discuss the area’s office market and how it is faring as we climb out of the pandemic. Following are excerpts from our discussion. 

What is downtown Denver looking like from an office vacancy standpoint?

Between COVID-19 and energy-sector volatility, the downtown submarkets have experienced the greatest rise in vacancy over the last four quarters with current vacancy at 15 percent including sublease space. After a Russian-Saudi Arabian oil price war in March of 2020 and the dramatic decrease in gasoline consumption during the initial stages of the COVID-19 lockdown, several large oil and gas companies vacated their space, triggering a wave of sublease availability within the CBD Core.

Additionally, many large corporations located in the downtown core are still operating remotely and a significant number of their employees will likely continue to work from home until Q4 2021.  Users that believe rents may still fall, and the current reduction in amenities has created a lull in leasing in the high-dollar urban submarkets. Having said that, we are seeing a recovery on the horizon as indicated by the healthy pre-leasing activity at McGregor Square, the new 659,000-sf mixed use project owned by the Colorado Rockies in the heart of LoDo. The significant leasing activity there suggests that businesses seeking a flight to quality in order to attract top Millennial talent is valued by expanding companies.

With the first quarter of 2021 coming to an end, what have been the bright spots for the market?

From an industrial perspective, manufacturing and distribution continue to expand as e-commerce flourishes and many of these occupier types are seeking more space. Given Denver’s strategic location between the coasts and the region’s sustain population growth, the Denver market is increasingly becoming a logistics and distribution hub for national grocery chains and agricultural providers.

Despite hesitation, the low rate of foreclosure remains a positive sign for the market’s recovery. Office investors are willing to meet market pricing for well-located, high-quality suburban assets leased to strong-credit tenancy. Value-add suburban and urban assets in “tweener” locations have languished with little investor activity. The CRE debt markets have been very active, with owners and investors taking the opportunity to adjust their debt-to-equity ratio through recapitalization for improved liquidity. Banks and debt funds have been active in construction financing for new industrial and multi-family developments.  1031 Exchanges remain active with investors in the industrial, multifamily and single-tenant net lease space.

What is the greater Denver CRE outlook over the next 12 months?

Denver’s increased economic diversification and growth over the course of the last expansion cycle has provided a buffer against COVID-19’s economic impact. It remains an important hub for the aerospace industry and continues to attract tech firms seeking asylum from West Coast lease rates. The resulting employment growth from these corporate relocations will continue to fuel and demand for all sectors over the next 12 months.

Ecommerce activity, which was already one of the industrial sector’s key drivers, exploded in response to the pandemic, and the demand for last-mile and logistical space remains very strong. Overall, large national and international investors see Denver as a place to attain greater yield than on the coasts, which bodes well for Denver’s long-term prospects.