Office Market Predicted to Lag Behind US

The Delta report is projecting an 11.6% office vacancy rate during the next expansion cycle, compared with its vacancy rate of 17% mid-year 2004. The Denver metro area needs a 15.5% office vacancy rate for equilibrium between supply and demand, according to Delta.

When compared with other cities across the country, metro areas projected to have lower vacancy rates through 2006 include New York City, Washington, DC, South Florida, Boston, San Francisco, Orange County, CA, Los Angeles, Austin, TX and Atlanta. By contrast, there are only five metro areas projects to have higher office vacancy rates--Chicago, Phoenix, Houston, and Dallas/Fort Worth.

The report notes Denver is expected to add only 1,500 jobs from June 2004 until June 2005, but the metro area will likely add more than 40,000 jobs per year in the next expansion during the next cycle.

"The telecom industry has been a major drag on Denver's economy, so as it stabilizes and the tech sector strengthens, Denver's economy is turning around," the report notes. The economy also is getting a boost from a strengthening distribution services sector, according to Delta.

The tech/telecom sector is a $13-billion industry, accounting for 14%of the Gross Area Product, the report notes. Only tourism, a $43 billion industry, accounting for 47% of the GAP, is a larger single, core industry.

The report notes that the market absorbed 180,000 sf of office space in the first half of the year, but is likely to absorb 4.3 million sf per year through 2006. Rents declined 0.5% in the first half of 2004, but are likely to increase 5% per year in the next expansion cycle, Delta reports.