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DENVER-The city’s office market vacancy rate is at 15.7%, the third highest in the country, according to a recent report by Delta Associates, the research arm of Transwestern Commercial Services. The mid-year report puts only Dallas/Fort Worth at 19.2% and Chicago, at 16%, higher. The lowest office vacancy rates were in Orange County, CA at 7.7%.

Denver’s office vacancy rate, however, is expected to drop to 12% by 2010, according to the report. Under its projected average vacancy rate for the 14 metropolitan areas from 2004 to 2010, Denver would rank No. 9, with four cities with higher rates. In addition to Dallas/Fort Worth and Chicago, Houston and Phoenix would also have higher vacancy rates than Denver.

The report also says that Denver’s average annual change in rent during the expansion period of the 1990s was 7.9%, the fourth highest in the country during that period. The San Francisco Bay area led the list with 11.6%, with Austin and Boston also out-performing Denver. However, with the downturn in the local economy since the tech crash of the early 2000s, the Denver area hasn’t fared nearly as well, at least for landlords.

In the first half of 2005, the change in rent was 0%, the same as Houston. Only Chicago, with a drop of 1% and Dallas/Fort Worth, with a drop of 0.5%, fared worse. The projected average annual change in rent from 2004 to 2010 for Denver is 5%, the same for San Francisco, Houston, and Dells Fort Worth. New York City is expected to show the greatest increase in rents at 7.5%. Chicago is expected to have the lowest rent appreciation at 4%.

The report also says that the Denver-area absorbed 446,000 sf in the first half of 2005 and is likely to absorb 3.7 million sf “per annum in this expansion cycle.” The report notes that 720,00 sf is under construction, which equates to 0.5% of the standing inventory. Of that space, 86% is preleased.

Delta also notes that 26,400 jobs have been created during the 12 months that ended in June. “The Denver/Boulder metro area will likely add more than 45,000 jobs per annum in this expansion cycle,” according to the report. “The telecom industry has been a major drag on Denver’s economy; as it stabilizes and the tech sector strengthens, Denver’s economy is turning around. Increased distribution services is also boosting the local economy.”

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