We’re asked that often and the answer depends on the perspective of the questioner – Tenant, Landlord, Buyer or Seller. In addition, market dynamics can vary widely if you look more closely at specific submarkets and the even the product type involved (e.g. Class A vs. Class B office).
It’s safe to say that the Metro Denver market still favors the commercial Office and Industrial Tenant or Buyer. The statistics, however, show that this dynamic is continuing a slow shift in advantage from Tenant to Landlord. The dynamic of Buyer versus Seller is more complicated and depends greatly on the type of property and location.
- Office Vacancy Rates Are Declining: At the end of the 2nd Quarter, the Denver office market had an overall 13.7% vacancy rate, with a positive absorption of office space – continuing the trend of decreasing vacancy rates over the past six quarters.
- Variation of Vacancy Rates Across Submarkets and Building Class:
Representative 2nd Quarter Office Vacancy Rate Stats:
|Vacancy Rates by Building Class|
|Denver Tech Center||14.7%||19.5%|
How can this information help with decision making?
Note how, in most submarkets, office vacancy rates are generally lower for Class A space than Class B space. This spotlights the trend typical of a soft market where Class B Tenants often “move-up” to better quality, Class A space when it can be secured at attractive pricing. Consequently, Class A office Tenants will generally find tighter markets with fewer Landlord concessions.
And note how Class B office vacancy rates are still almost 20% in the large downtown Denver and DTC submarkets. Class B office Tenants in these submarkets will find more accommodating Landlords in this still competitive environment.
In most submarkets, it’s still a good time for Office Tenants. Obviously, Tenants will typically secure their best deals with submarkets and product types having the highest vacancy rates.
It’s still a great time for Buyers: The instability in credit markets and the slow economy has created a flow of distressed assets coming into the market since 2008. In fact, since spring 2011, we have seen further drops in pricing for distressed office properties as banks negotiate short-sales and properties move into foreclosure. For Buyers with strong balance sheets and access to cash and/or financing, this can be a very attractive time to buy – especially for select distressed assets.
To achieve the best rates and terms, you must understand the market and use this knowledge to develop maximum leverage when negotiating a new lease, lease renewal or property purchase. By understanding as much as possible about the market and the Landlord’s or Property Seller’s motivations you will be in the best position to achieve an aggressive deal.
It is our primary role to maximize market knowledge and leverage for our clients, and we do this through a systematic, battle-tested approach. Please contact Guidance with your questions or to set up a meeting to discuss your future real estate needs.
Image credit: Larry Johnson | CC2.0
Guidance Corporate Realty Advisors
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Guidance Corporate Realty Advisors provides corporate tenant / buyer representation services to corporate real estate users in the Denver metropolitan area including Boulder, Colorado. Guidance also provides these services in all major U. S. markets, as well as markets in Canada, Asia, South and Central America, and Europe.