With year over year vacancy rates declining in all three submarkets, metro Denver’s commercial real estate is poised for continued recovery in 2012, according to fourth quarter Market View from CBRE Inc. The metro Denver office market’s vacancy rate dropped to 15.7% in the fourth quarter, down 0.1 percent from the third quarter and 0.3 percent from the fourth quarter of 2010. The retail and industrial markets declined year over year to 8.1 and 7.8 percent respectively, from 9.6 and 8.6 percent.

Overall office lease rates stood at $19.75 per square foot, up slightly from the third quarter’s $19.64 and down slightly form $19.78 in the fourth quarter of 2010. Retail rates dropped slightly from $16.82 to $16.56 per square foot, but rose from the third quarter’s $16.20.

Highlights form the report:

  • The seventh straight quarter of positive absorption – companies leasing space – in the industrial submarket.
  • Increasing office market investment sales, bolstered by the sale of the CenturyLink building at 1801 California St. to Brookfield Office Properties Inc. for $215 million.
  • Oil companies continue to lease industrial space in the northern submarkets.
  • CBRE (NYSE: CBG) is a Los Angeles based global commercial real estate brokerage firm. In October, it changed its corporate name from CB Richard Ellis Inc. to CBRE Inc.

Office Market –  With 107,041,254 total square feet of rentable area in metro Denver’s office market, there was net absorption of only 235,459 square feet for the fourth quarter. It was the third consecutive quarter of positive absorption. The average asking rental rates downtown are the highest in metro Denver at $25.47 per square foot, with Cherry Creek not far behind at $21,18 and the northwest at $21.39. Office leasing activity was led by the energy, education, health care and financial sectors. Additionally, despite recent mergers and downsizing, the technology and telecommunications sectors are poised to contribute in the metro area’s recovery.

Industrial Market –  Improving fundamentals in this market show it will continue to rise in 2012. Aided by historically low levels of new construction and seven straight quarters of positive absorption now being recorded, the local vacancy and availability rates for the Denver industrial market are clearly stabilizing. Companies leased a total of 670,000 square feet in the fourth quarter. The hottest markets continued to be the Boulder submarket, with an average asking rate of $8.86. The northwest and southeast markets also showed improving lease rates coming in at $8.21 and $8.27, respectively. The lowest total vacancy rates came in the central Denver submarket with 4.2% and the Commerce City area, 4.5%. the highest vacancy rate was in Longmont, 16.9%.  Brighton/Fort Lupton area will continue to thrive because of oil and gas companies leasing all available space, almost to the point of pushing speculative construction.

Retail Market –  Despite being the only commercial real estate sector to show a negative absorption in the fourth quarter, there are encouraging signs. The 13,605 square feet of negative absorption, was due in part to the closing of a Lowe’s in the central submarket, releasing 138,381 to the market. But the fourth quarter was the first period of negative absorption in 2011. Significant retail projects currently under construction are the 120,000 square foot Walmart at Lakeside, the 135,000 square foot Target at Tamarac Plaza redevelopment and the 40,000 square foot new concept King Soopers at Kent Place on south University Boulevard and east Hampden Avenue. The area’s highest leasing rates, always occurred in the Colorado Boulevard/Cherry Creek submarket at $26.31 per square foot. It also had the lowest vacancy rate at 1.6%. The next closest market was Boulder, which came in at $18.74 per square foot in the fourth quarter and had a vacancy rate of 6.4%. Only two markets posted double-digit vacancy rates, Aurora at 10.1% and the northwest at 10.7%.