'Solid Signs of Recovery' Seen in Market Sectors

During this time, construction and leasing activity decreased dramatically in the area. "However, we are beginning to see solid signs of recovery," Miller says. For example, there is currently only 51,000 sf of spec office space under construction and 261,000 sf completed this year, which has kept supply down.

On the other hand, leasing activity is up on a year-over-year basis from the prior two years. Net absorption, while still negative, is on an upward trend. The availability of "shadow-space" has declined as well, Miller notes.

The overall market office vacancy rate is 20.9% for the metro area--with the two major submarkets, the Central Business District at 19.1% and the Southeast Suburban Market at 25.3%. The metro area's other major development area, the Northwest Corridor, currently has 21.3% vacancy. Lease rates for class A space are around $21.50 per sf. Class B and class C space rates have been discounted by approximately 20%.

"From the industrial perspective, the overall vacancy rates stand at 10.7% and have remained steady over the past year," Miller says. "Construction activity is down, but the Northeast Corridor at E-470 and I-70 is experiencing rapid growth with recent strong leasing activity. Lease rates for new construction are approximately $5 per sf and second generation space totals around $4 per sf. Hi-tech space, with a 20.8% vacancy, has been leasing in the $7 per sf range."

The retail sector, he notes, continues to be strong in the metro marketplace with heavy construction/leasing activity and positive net absorption. Because the metro area continues to expand residentially, retailers are benefiting significantly, Miller notes.

In fact, "despite stagnancy in other areas of the real estate market, the investment sector is on fire," Miller says. Prices, cap rates, and internal rates of return are near all time highs, he notes. "Denver is a highly desirable location from a commercial real estate investment perspective," he says. "Fueled by low interest rates, 1031 exchange money, and a diversified economy, we expect this trend to continue until interest rates increase."

"With the stabilization of the overall real estate market, the immediate future for the Denver market remains optimistic," according to Miller. "Our economy remains diversified [and] area employers have added over 40,000 positions in the past three months alone."