When Will Spec Office Construction Start Again in Denver?

By Jamie Gard
Frederick Ross Company

DENVER - Technically, speculative office development has already begun at a number of sites in the Denver market. The reality is that the land underneath the building and the holding costs of that land become part of the economics of a new speculative office project and, as a result, the meter is already running for a number of developers that own land and who are in various stages of planning and design in the downtown and suburban markets. In many cases, these are not sites that are left over from the last market cycle or that are remaining parcels in office parks, but rather are sites that have been acquired in the current cycle for the express purpose of developing new product. And while it is true that we have yet to see cranes and vertical development on any of those sites, there are a number of projects that are refining their designs and are well underway, contacting anchor tenants for their new projects.  Most of the developers for these projects are still keeping their cards close to their vests, which is why little news has emanated thus far.  Few new properties will be built without at least 30 to 40 percent of the new space leased prior to groundbreaking, so the term 'spec development' applies loosely in Denver at this point.

Based on a historical perspective, it may seem as though market conditions do not yet warrant new supply. Through out the end of the second quarter, according to Ross Research Services, Downtown Denver has a vacancy rate of 14.51 percent, and major markets like the Southeast Suburban are even higher at 22.84 percent vacant. Even when we drill down into Class A space and large blocks of availability, there are still office space options available, particularly in sectors such as the CBD's Uptown. What savvy developers are seeing is not only a demand for space in the next few years as the market recovers, particularly near hot submarkets such as LoDo, but a need for a new type of space today.

Recent innovations in glass lines, ceiling heights, floor plate sizes and even environmentally designed green buildings means that new buildings can offer advantages that translate to gains in operational efficiencies and worker productivity that even the best buildings in the CBD are hard pressed to offer.

New construction in the market will also be focused on Transit-Oriented Development, capitalizing on TREX/FasTracks improvements.  Proximity to convenient mass transit offers opportunities for developers to rethink the interaction of design, demographics, and transportation, which will in turn translate in advantages for tenants desiring enhanced customer access, stronger supply chains, and related advantages.