According to Newmark’s Q1 2023 market reports, the first quarter of 2023 was a continuation of the trends seen at the end of 2022, with persistent economic fears holding tenants back from confidently making long-term plans for office space.
Reclassification Clean-up and Familiar Trends to Start 2023
Office markets across the nation have seen fundamental changes in the past few years. Tracking and understanding a changing market requires updating models of data. An extensive reclassification of every office building in the market has been carried out based on year of construction, size, amenities, rental rates and location. A few submarket boundaries were also updated to better group buildings with similar market behavior. These updates will allow more accurate tracking for both ongoing and emerging trends in the market during this volatile time.
The first quarter of 2023 was a continuation of the trends seen at the end of 2022, with persistent economic fears holding tenants
back from confidently making long-term plans for office space. Those that have remained active in the market are small
companies looking for under 10,000 square feet of space that can move more nimbly than larger tenants and specific industries
that highly value a collaborative work environment. The latter, such as law and engineering firms, are often turning to new
construction to entice their workers back with the highest-quality space; however, many are also offsetting the higher rates of new construction by consolidating and downsizing their overall footprint, resulting in a counterintuitive overall loss of occupancy
in Class A buildings. The rate of new vacancies continued but several long-delayed move-ins were finally able to occupy.
Quarterly net absorption was negative 463,495 square feet. Vacancy still rose to 24.6% from 24.0% in the prior quarter, up from 21.8% one year ago.
– High-quality space and new construction most desired.
– Activity dominated by small tenants.
– Rental rates are largely being pushed up by higher taxes and other operating costs rather than base rate increases.
– There is 6.7 MSF of available sublease space in the Denver market with 4.6 MSF of it vacant, another record high amount.
Denver’s Industrial Market Began 2023 with Sizeable Gains
Although quarterly net absorption remained robust in the first quarter of 2023, it was down compared with the prior quarter. The Denver market posted 747,830 square feet of net absorption while vacancy was 7.8%, an increase from 6.3% year over year. In line with quarterly trends, the East submarket logged the highest quarterly net absorption with 379,780 square feet, which bested the $10 fourth quarter of 2022 by 70,000 square feet. Vacancy in this submarket was 7.7%, down from 7.9% in the prior quarter and up from 6.7% year over year. The Northeast submarket was second highest in terms of absorption with 356,117 square feet, the highest quarterly figure in more than four years, and had the largest $0 move-in of the quarter: Johnson Cherry Creek occupied 250,000 square feet at 18875 East Bromley Lane. Vacancy was 22.0% in this submarket, which was up from 20.6% in the prior quarter and 8.1% year over year. Increased vacancy in the Northeast submarket can be attributed to the delivery of more than 750,000 square feet of vacant speculative warehouse this quarter.
The next two largest move-ins of the quarter were the Claremont Foods move-in at 11751 Huron Street for 108,006 square feet in the Northwest submarket and the Vartega move-in at 5675 Pecos Street for 84,137 square feet in the Central submarket. Quarterly absorption was lowest in the Central submarket with negative 67,019 square feet, credited to the large move-out by Planterra Foods at 1485 East 61st Avenue. Vacancy in the Central submarket was 5.6%, up from 5.4% in the prior quarter and down from 5.8% year over year.
- Asking Rates remained largely flat except for R&D/flex rates in the Central submarket
- 7.6 million square feet is due to deliver by the end of 2023
- Vacancy is up for the fourth straight quarter due to the delivery of vacant speculative product
- Food and beverage, clean energy, and building supply tenants were market leaders in absorption this quarter
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