JLL has shared its Q2 Denver Office and Industrial Insight reports. Here is a summary of each market:
5 things to know about Denver’s Q2 office performance:
- Following a strong recovery, office-using employment has plateaued
- Assets five years old and newer consistently outperform older ones
- Direct asking rents are moderately declining from their September 2023 peak
- Following a brief lull, tenants started listing their spaces for sublease again
- Positive direct absorption and thinning development pipeline — striking a balance
Q2 Denver Office Findings:
- Vacancy reached a record high of 24.8% in Q2, in part due to the tech sector adopting flexible workplace arrangements.
- For only the second time since the onset of the pandemic, quarterly direct absorption measured positive.
- Sublease availability ticked higher for the quarter but decreased over the past 12 months, staying well above the long-term average
at 5.0%, even as more converted to direct availability. - Landlords marketing direct available space lowered asking rents slightly in Q2. Direct face rates fell in two of the last three quarters and were up only $0.15 p.s.f. since last June.
Outlook
Projections show that office-using employment should improve steadily and moderately over the quarters ahead. The share of lessees that are coalescing around intentions to at least maintain a stable footprint (versus shrinking) will, in turn, continue to tick up proportionately. Nonetheless, the balance of 2024 will see increasing vacancy rates and, more likely than not, asking rent compression.
Q2 Denver industrial Findings:
- The construction pipeline has dipped below 5 million s.f., which will help control vacancy moving forward as less new product will enter the supply vacant and available. Recent deliveries are a large contributor in vacancy reaching its current percentage, as preleasing is historically low in the Denver market.
- New, Class-A product that’s delivered recently has seen leasing success, particularly in the Southeast, North Central and North I-25 submarkets. Tenants have consistently leased space in the 10-60,000-square-foot size ranges across the market, benefitting properties that can demise space.
- The market is positioned well to rebound during the second half of 2024. A considerable amount of space is positioned to absorb after tenants finalize their buildouts. Multiple 100,000-square-foot plus users are scheduled to move in during Q3 and Q4 of 2024, and the beginning of 2025.
- Tenants have still shown a willingness to grow but often take longer to get a deal finalized as many factors need to be considered.
Outlook
The industrial sector has experienced remarkable success in recent years, although recent market conditions have made an impact. Factors such as negative absorption, elevated vacancy rates, and tepid rent growth have prompted an adjustment in landlord leverage. Given shifting market conditions, several tenants have accepted a longer deal cycle as they prioritize optimizing their real estate footprint. Slower to act tenants have raised landlord concern but rest assured tenant demand remains throughout the market. Owner users have been active during the first half of 2024, buying and selling numerous buildings in tested industrial pockets. Larger users have looked at both BTS and newly delivered spec product. In the end, Denver’s industrial market has shown resiliency and the ability to adjust to user needs.