Denver office and industrial markets ended strong in 2014 while retail slower. Denver Office submarket showed a positive absorption of 783,730 square feet at the end of fourth quarter, lowing the vacancy rate to 10.3% from 10.6% at the end of third quarter 2014. However, third quarter absorption was significantly higher at 1,068,288 square feet. Denver office properties also posted the most absorption in 2014, with more than 3 million square feet of positive absorption, an increase of 62% over absorption totals in 2013.
Average rental rate came in at $23.26 per square foot which was a 1.5% increase from the average rental rate of $22.91 square foot at the end of third quarter 2014. Net absorption for Denver’s central business district was 156,543 square feet at the end of fourth quarter, compared to third quarter which saw a positive of 444,221 square feet. Total net absorption for the year was 652,220 square feet, lowing the vacancy rate to 10.9% for CBD. Submarket also posted a net absorption of 627,187 square feet at the end of fourth quarter, compared to 624,067 square feet in third quarter 2014. In addition, a total of four buildings were delivered to the Denver office market in fourth quarter totaling 174,538 square feet, with another 2,936,711 square feet still under construction.
Industrial submarket continued to set records with lease rates hitting the highest level since 2004 at $7.29 per square foot which includes flex use. This was the fifth consecutive quarter of lease rate growth. A total of 1,457,613 square feet was absorbed in fourth quarter, bringing the total net absorption to 6,357,898 square feet, lowering the vacancy rate to 4.6%. The vacancy rate was 4.9% at the end of the third quarter 2014, 5.1% at the end of second quarter 2014, and 5.3% at the end of the first quarter 2014. The Airport/Montbello submarket area had the highest absorption rate out of all submarkets at 2,550,013 square feet including flex use, lowing the vacancy rate to 4.3%. Average lease rate for the Airport/Montbello area was $5.31 per square foot. While rents are increasing, they have not quite reached a high enough level to spur new developments for smaller tenants. Typically, most developments being build are around 500,000 square foot and are geared towards the 100,000 square foot user which is more cost effective. However, many tenants are looking for smaller spaces closer to 30,000 square feet which are more expensive to develop. Lease rates would have to be closer to the $7 per square foot for developments that can be subdivided into smaller spaces.
The Denver commercial real estate also finished the year strong, with more than $3 billion in investment properties trading hands. Approximately $2 billion in office properties, $659 million in retail properties, and $400 million in industrial properties.