Wheeler Sees Mix Bag in Office Market

He cites as bad news negative absorption of 663,989 sf at mid-year, an overall vacancy rate of 21% and shadow space that could account for 2.5 million sf on the market that isn't being factored into report, making the vacancy rate worse than it appears. Indeed, one national report, he notes, estimates corporations across the country aren't using about 10% of their space.

Corporations account for about half of the office space on the market, Wheeler says, so if that were true in Denver, there would be about four million sf of empty office space on the market that at some point could be competing for tenants. But Wheeler says he thinks that overstates the problem, and it's more likely that there is about 2.5 million sf of shadow space on the market.

On the plus site, the "deal velocity," a hard to calculate formula of how long it takes to do deals from start to finish, appears to be improving, Wheeler says. Also, the size of leases seems to be improving, he adds.

Another trend that could bode well for the office market is productivity appears to be slowing. That could be welcome news for the office market, because as productivity improves, companies need fewer workers, which means fewer bodies to fill offices, he notes. But if productivity slows, companies will need to hire more people. At least in theory.

The problem is companies won't hire unless the economy is improving. The local economy has been lagging the national recovery, but it is still a big question mark of exactly how long it will take for demand to meet supply, and return the local market to equilibrium, Wheeler says.