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DENVER-The area office market is stabilizing and likely will strengthen next year, according to the latest Delta Associates’ report. Delta is the research affiliate of Transwestern Commercial Services.

However, Delta still lumps the city with nine other metropolitan areas in the correction/contraction phase. Denver is in the same category as Atlanta, Boston, Chicago, Dallas/Fort Worth, Houston, Oakland/East Bay, San Francisco, Seattle and Silicon Valley. Metropolitan areas in the expansion phase are led by Los Angeles, Baltimore, New York City and Phoenix, followed by Orange County and Washington, DC.

Delta suggests a number of strategies for tenants, developers, institutional investors, and corporate owners of real estate. Tenants, Delta says, should make their move over the next 12 months to capitalize on the current tenant market before the pendulum begins to swing back in 2005 and 2006. Developers should still look for build-to-suit opportunities and renovation projects as good locations, as there is no demand for spec offices. Institutional investors, Delta advises, should pursue well-leased class A buildings, with near-term stable rent rolls in strong submarkets.

And for corporate owners of real estate, they should shop for and plan new facilities. Corporate owners also would be wise to engage in sale-leaseback deals for their facilities.

Delta puts the overall office vacancy rate at 17% and the direct vacancy rate at 14.9%. By comparison, the overall vacancy rate stood at 16.7% at the end of 2003, 17.4% in 2002 and 13.9% in 2001.

The tightest overall submarket is Midtown, with a 6.4% vacancy rate, where 264,156 sf of the 4.4-million-sf market is available. Delta says that the Inverness Business Park, with 4.18 million sf, has the highest vacancy rate at 29.7%. That compared with a 26.9% vacancy rate in Greenwood Village, an eight-million-sf market, and 21% in the Denver Tech Center, with 10 million sf.

Overall, Delta notes the region’s core industries strengthened in the first half of the year. Payroll job growth, however, still lags, as firms delay hiring to keep costs down.

The Denver/Boulder payroll employment declined by 0.2%–2,000 jobs–over the 12 months ending in April, compared to a 0.8% gain nationally over the same time period. Meanwhile, start-up firms and the self-employed created 33,700 jobs in the region in the same period. These jobs are not included in the payroll survey and are often regarded as a precursor to payroll gains, Delta notes.

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