Downtown Denver Submarket Highlights
According to CoStar Analytics, Office Vacancy in the Downtown Denver submarket has decreased from 14% to 13% since 2017, as new office product has absorbed. Lease rates have continued to climb; Full Service Gross Asking Rates increased from $32.50 to $33.50 ($1/SF increase) since the beginning of 2018.
Rental rates in the $40/SF-plus range in new office product have caused a rising of the tides, especially in older Class A product, as legacy Class A building owners push rates to catch up. In addition, massive increases in property taxes due to assessments have driven expenses to unprecedented levels. Tenants are unfortunately bearing the burden.
Major leases in new office product include Gates, Optiv, BP, Chipotle (now on market for sublease), Xero, and HomeAdvisors. WeWork continues its takedown of office product (both new and legacy Class A product), and is now the largest tenant in the Downtown Denver submarket. Co-working and Technology are now the leading occupiers of office space Downtown, by sector, outpacing Banking, Finance, Insurance, and Energy.
Companies looking for value have looked to the Central Business District (CBD), which is undergoing a resurgence. Technology companies, in particular, fill large blocks of space in renovated Class A and Class B office towers. For tenants looking for cost savings Downtown, we recommend that companies consider the CBD and also Uptown as an alternative to higher rent micro-markets (Lodo, RiNo, Platte, etc.).
Exploring the Market
Many Tenants negotiate their own lease renewals and are usually able to obtain some concessions from their Landlords; however, in an ascending market, this can be difficult to achieve. Without the assistance of a commercial real estate advisor, Tenants usually do not fully understand the value their leases add to the building (especially when a building is being positioned to sell).
What’s at Stake
Tenants must realize that lease renewal/restructure negotiations are not basic administrative issues, rather, an opportunity to save money and strengthen competitive positions. What’s more, Tenants must be prepared to face lengthy negotiations, and go through all of the iterations of a move, especially the construction process and all of its components. The work at hand is to be performed by a commercial real estate advisor, while Tenant’s remain focused on business operations.
How to Win
Tenants should enter negotiations with clear objectives. Face rate reduction, immediate rent relief through free rent, rightsizing, fully understanding Tenant Improvement needs for updating the space or improving operational efficiency, signage or lobby identity, caps on controllable expenses, and other factors should be outlined from the beginning. If Tenants don’t know their objectives, how can they know they have achieved them? Landlords are not all created equal. It is important to understand that Landlords are real estate professionals who negotiate leases for a living. Each Landlord has different motivations. Is the Landlord a REIT, pension fund, or entrepreneurial investor? Long-term holder of assets, or value-add and exit? This all affects how we approach Landlords for concessions.
Tenants should understand the market. This means knowing where deals are getting done in comparable buildings and considering effective rates, through a combination of free rent in conjunction with face rates. Plus, what are the concessions achieved by other similar Tenants? Such as free parking, Tenant Improvement allowances (or application of unused allowances to free rent or FF&E), furniture monies, moving expense rebates, signage, renewal and expansion rights.
How We Can Help
Community First Commercial Real Estate helps clients plan, and execute, successful renewal/restructuring strategies. As an educated third-party service provider, we understand Landlord motivations, economic factors, market forces, and Landlord vulnerabilities. This knowledge, in conjunction with a thorough awareness of client business and occupancy objectives, ensures the Tenant reaps the full benefit of its tenancy, resulting in reduced fixed occupancy costs, and a competitive advantage.
DOWNTOWN DENVER SUCCESSFUL TRANSACTIONS