The commercial real estate (CRE) market in Denver is proving to be a hot commodity as the demand for office and industrial properties in the Colorado hub continue to increase. Meanwhile, supply is falling fast, suggesting that companies interested in opening a location in downtown Denver need to act quickly or risk falling behind as CRE supply shrinks and rent prices continue to surge.
Last year, the mountainous city saw an upswing in the amount of industrial space that investors were investing in. A report from CBRE found that most new commercial construction is taking place in Denver’s Airport and North submarkets. Office properties attracted significant investor interest, as the total number of investment sales in the space reached $2 billion, a strong 7.1% gain compared to 2016.
Office properties are on the rise in Denver
So far, this trend has continued throughout 2018, with office properties producing solid returns, according to CBRE’s data on the 22 properties that were sold during the first quarter of the year. These sales included a $152 million transaction – the Denver Tech Center – that pulled in $977.9 million, or $316.58 per square foot, marking a 29% increase compared to office deals completed during the fourth quarter of 2017.
The growing interest in office space in Denver suggests that the downtown area will experience a shortage of large blocks of Class-A space, according to data from a report by Newmark Knight Frank. This shortage is likely to push tenants to large blocks in Uptown and Skyline as rent and acquisition prices in downtown Denver will rise over the coming years.
One of the most notable recent deals was City Office REIT securing the acquisition of CirclePoint Corporate Center in Westminster for $59.75 million earlier this week. The buildings are 93% leased with over seven years of weighted average lease terms across both buildings. The REIT is likely to win big with this investment due to the location and office-friendly design of office campuses in northwest Denver.
Demand for industrial space
Demand for industrial space has also seen an uptick recently as there was 4 million square feet of new industrial projects under construction by the end of 2017. This demand has increased direct asking lease rates of industrial spaces to a record high of $26.54 per square foot.
So far, 2018 has seen industrial lease rates surge as new construction projects have experienced minimal progress. About three quarters of the current industrial pipeline is taking place around Denver International Airport, as well as the northern part of the metro area. Most of these properties are warehouses and distribution centers as e-commerce continues to grow.
Notable investments in 2018 include the Pauls Corp. selling 14 Class-A buildings in the Airport-area Gateway Park industrial development to real estate investment firm Clarion Partners. The firm paid $206.1 million for the property, which covers 1.93 million square feet, marking the largest industrial deal on record in the Denver metro area, per CBRE.
The first half of 2018 saw at least 49 industrial properties change hands, totaling $402.2 million in sales, according to CBRE. The amount marks a 22% increase compared to the previous 12 months. The city’s real estate prices are rising at a rapid rate, making them an exciting investment opportunity for those who seek out a CRE loan with a private lender, due to the speed at which they can get such a loan approved.
Retail property trends in Denver
The Denver retail space has also experienced some positive momentum in 2018 as restaurants, small stores, mixed-use retail and urban apartments are still in high demand. City developers have attained roughly 1.2 million square feet of retail space that’s under construction during the first quarter of 2018, marking a 9% increase compared to the same period a year ago.
CBRE’s latest Americas Investor Intention Survey for 2018 was released recently and participants chose the Denver metro area as the seventh most desirable investment market in the Western Hemisphere, coming in ahead of cultural hotspots such as Miami, Boston and Toronto. The Colorado city was also named the 19th biggest market in the country by population.
Denver is a good city for private loans at the moment due to the fact that CRE investors can get a loan approved at a much faster rate than they would with a bank. This is relevant due to how quickly the retail and industrial space is evolving in the city, with construction sites being completed at record speeds and tech companies investing in downtown Denver.
Plus, private loans offer low interest rates, while allowing foreign investors to get a loan approved more easily. They increase the chance of investors making a quick profit with their investments as yield rates are increasing in the CRE space in Denver.