Office Market Shows Signs of Improvement

But don't expect an immediate turn around, Wonhof cautions. "Denver's office market will continue to crawl," he says. "Denver will remain a tenant's market through 2006."

During the slow recovery, vacancy rates will stabilize for the rest of the year. Class A space in Downtown's Central Business District stands at 16.3%, the Denver Tech Center's vacancy rate is at 17.3%, and the Denver Boulder corridor along US 36 is at 30.7%. All are modest improvements from the fourth quarter and a year earlier. And the US 36 corridor will see a significant drop in the next quarter, when two big deals, from McData and Dean Foods, take place, he says.

Landlord concessions will remain prevalent, especially for high-quality tenants, he says. The Southeast market still faces the biggest challenge. It has 5.4 million sf of available office space, accounting for 31% of all of the available space in the metro area.

One positive sign is that only 10% of the available space on the market is subleased space. Two years ago, subleased space accounted for 17% of the available space and in 2001, it accounted for 25% of the available space.

Wonhof says the average asking lease rate per sf for class A space in the CBD is $20.69; Southeast Suburban is at $17.97; and Northwest holds steady at $18.69. However, he says that at these rates landlords may be a bit too optimistic. The actual rents that they are getting, on average, are probably about 10% lower than the asking rate, he tells GlobeSt.com. Another good sign: The market already has experienced about 600,00 sf of positive absorption, after booking slight negative absorption at the end of 2004.