Vacancy Rates Drop, But Office Rents Remain Flat

Despite the improvement, class-A office rates remain absolutely flat at an average rental rate of $18.94 per sf, unchanged from a year earlier. Class-B office rates fared a bit better, rising to an average of $16.16 per sf, compared with $15.78 a year earlier.

The report shows the Central Business District has an overall vacancy rate of 14.7%, which is slightly better than the overall market. The best vacancy rate is found in the small Midtown market at 8%. The worst vacancy rate is along the Broomfield market along the Northwest corridor at 23.7%.

On a national basis, only one market, Dallas-Fort Worth, had a higher overall vacancy rate than Denver, Dallas-Fort Worth stood at 19.1% mid-year. And only two cities, Cincinnati and Columbus, OH, had lower overall rental rates. Respectively, their rates are $17.62 per sf and $18.08 per sf.

Denver's overall vacancy rate is still worse than the national average, according to Staubach, which peaked in 2001 at 14.6%. The Denver office vacancy rate is three points higher than the national overall average vacancy rate, which stands at 13%.

Barry Dorfman, who heads Denver's local Staubach office, recently told GlobeSt.com the market is slowly showing signs of improvement. The market, he notes, is not home to many corporate giants. Rather, most of the growth comes organically from small companies growing, he explains.

Still, there is a silver lining for the affordable rates and higher occupancies than the nation a whole. Tenants continue to get good deals, although incentives are starting to disappear, especially in a lot of class-A buildings, Dorfman notes. Much like during the real estate crash of the late 1980s, some companies that would have been class-B tenants are finding they can afford class-A space, helping class-A space fill quicker than class-B space. But as class-A space begins to disappear, all space will become tighter and eventually owners will start to raise their rates, he notes.