With an increase in construction expected later this year, Denver has been identified by CBRE as one of the top 10 markets for development opportunities. The Top 10 overall markets in CBRE’s inaugural Development Opportunity Index are: 1) Atlanta with a score of 83.81; 2) Dallas, 83.04; 3) Phoenix, 82.94; 4) Orlando, Fla., 82.06; 5) Seattle, 81.11; 6) Denver, 81.08; 7) Raleigh, N.C., 80.88; 8) Houston, 80.74; 9) Austin, Texas, 80.61; and 10) Charlotte, N.C., 79.49.
The report analyzes existing real estate supply, current construction costs and past performance to identify markets and property types that offer the best opportunities.
- Strong fundamentals such as job growth and low relative land costs contribute to top 10 forecasted rental rate growth in both multifamily and office properties.
- Denver is one of the few markets with three top-five finishes in the index at the property level (office, retail, multifamily), with industrial also ranking well at 11th.
- Denver placed 14th for overall market liquidity, putting it on par with markets such as Phoenix, San Jose and Ft. Worth.
- New commercial properties will require enhanced amenities. Developers are prioritizing new features that promote health and safety, tenant flexibility and ease of access in response to COVID-related concerns.
- Opportunities are broad and well dispersed. Nearly all markets reviewed in this report are characterized by favorable construction costs and supply levels.
- Conditions will remain choppy in the short term. Developers are focused on site acquisition across property types.
- Higher construction costs are not impeding new development. Average construction costs have more than doubled over the past 20 years, but high-cost markets with plentiful talent like San Francisco, New York and Boston top the charts in terms of new supply growth and absorption.
- Demand for tenant fit-outs remains muted. Office tenants generally are renewing their leases rather than signing new ones in the current environment, resulting in much less demand for tenant fit-outs.
- Occupier strategies are changing, but some priorities remain the same. Nearly 80% of respondents to CBRE’s 2020 Global Occupier Sentiment Survey said the importance of the physical office will remain the same or decrease slightly.
- Sun Belt markets continue to thrive. Eight of the top 10 development opportunity markets are in the South and Southwest, due to favorable demand drivers like quality of life, in-migration and job growth.
- Flexible office options will be a significant part of occupiers’ long-term strategies. CBRE’s Global Occupier Sentiment Survey found that 86% of respondents say they will employ flexible office space strategies in the future.
- Preleasing of speculative office development is outpacing the levels achieved during and immediately after the Great Recession. Overall speculative office development is currently 50% preleased nationally.
Read the full report by CBRE.