Report Suggests Office Market Recovering

"Investors are drawn to Denver's economic infrastructure of high-tech knowledge-based companies and positive demographic trends, whichhas resulted in steady transaction velocity and rising prices in each of the last three years," he adds. Some reasons for his optimism: Office construction remains constrained as only 485,000 sf is expected to come online this year, which is 70% below the 2003 total. Phase II of Clayton Lane in the Colorado Boulevard Corridor, anchored by Janus Capital Corp., came online earlier this year and at 186,000 sf, representing the largest project that will be delivered in the metro area.

That means office demand will outstrip new construction this year, causing the overall vacancy rate to decline to 21.5%t down 60 basis points from year-end 2003. There is still a considerable amount of space to absorb, and the recovery will be slow. The city's Central Business District s outperforming the suburban markets with vacancies hovering around 17%, Marcus & Millichap points out in its report.

Indeed, rents throughout the metropolitan area remain soft but finally appear to be stabilizing. Marcus & Millichap is forecasting year-end average asking rent of $17.85 per sf and an average effective rent of $13.87 per sf. When compared to 2003, this equates to rent reductions of 0.4% and 1.5%, respectively. The firm also is forecasting for the median price for office buildings to ease 5% to approximately $97 per sf, compared to $102 per sf in 2003.

This represents a shift in upward trends in both prices and transaction volume recorded in each of the previous three years, the company says. Private investors have dominated the landscape with more than 75% of the transactions recorded over the past 12 months valued at less than $5 million.