Strong Absorption and Record Lease Rates a Common Theme in Q3
DENVER – CBRE recently released its Q3 reports analyzing the recent performance of metro Denver’s office, industrial and retail commercial real estate sectors. Across all sectors, strong absorption and record or near-record lease rates was a common theme while construction activity slowed from earlier in the year. In total the three sectors recorded nearly 3 million square feet of positive net absorption in Q3 and 8.7 million square feet of commercial space was under development at the end of September.
“Denver has maintained its position as a place where top talent and top firms want to be. This is driving strong economics and positively impacts all corners of the commercial real estate market,” said Matt Vance, economist and director of research & analysis, CBRE.
Q3 Office Highlights
Driven by occupancy in newly constructed buildings, Q3 recorded 873,501 square feet of positive net absorption, bringing the year-to-date total to just under 2.0 million square feet., already surpassing year-end totals for 2015, 2016 and 2017.
The average asking lease rate increased to $27.88 per square feet—a 5.7 percent increase year-over-year and the fifth consecutive quarter in metro Denver with a record-breaking lease rate.
Almost 2.8 million square feet of office space is under construction, which is actually a slowdown equating to the lowest construction footprint underway since Q4 2015.
Q3 Industrial Highlights
Q3 marked the 34 th straight quarter of positive net absorption for metro Denver, bringing year-to-date industrial net absorption to 2.5 million sq. ft., driven primarily by companies occupying newly constructed buildings.
Over 4.7 million sq. ft. of industrial space was under construction in Denver at the. end of September, which is also a bit of a slowdown, but it’s temporary as several sizable projects are anticipated to break ground in Q4.
The overall average asking lease rate rose to $8.22 per sq. ft. triple net, the highest rate ever recorded in metro Denver.
Year-to-date overall sales volume totaled $1.3 billion, up 68 percent from last year, driven primarily by large industrial portfolio sales.
Q3 Retail Highlights
Over 561,000 sq. ft. of new retail space delivered to the market—the greatest quarterly total this business cycle—and more than 1.2 million sq. ft. of additional retail space is under construction.
Nearly 385,000 sq. ft. of positive net absorption occurred in Q3, driven primarily by the opening of Denver Premium Outlets.
The average direct asking lease rate reached $18.90 per sq. ft. triple net—the second highest rate on record.
Trends – what are we seeing retailers, owners and developers do to adapt to the changing industry:
o Owners are overhauling existing shopping centers with more entertainment and medical service options
o Developers are prioritizing mixed-use, in-fill projects
o Retailers are introducing smaller-format, urban concepts
o Restaurants are revamping their kitchens to handle more delivery orders