Denver weathered the recession more resiliently than most metro areas in the U.S.. Unemployment is 6.6% compared to the national average of 7.6%. Denver is positioned to regain jobs formerly lost to technology and telecom industry downsizings and mergers due to an active lifestyle population and educated workforce. Its population is second only to Boston with 39.7% of Denver’s population holding a bachelor’s degree or higher. Forbes took notice, ranking Colorado as the number one state for labor supply.
The office market is recovering nicely; its vacancy peaked at 17% in 2009 and is now down to 13.7%. During the first half of 2013, office market conditions improved with advances in key fundamentals such as vacancy, asking rates and absorption. The market remains in the early stages of an expansion cycle. There is a limited amount of big block space in Class A assets pushing rates higher and creating a ‘waterfall effect’ to Class B buildings. Speculative construction is currently limited to downtown and the suburban markets have turned in the Landlord’s favor. We anticipate this trend to continue for several years and, like SLC, believe we can benefit from purchasing office properties that can undergo minor renovations to cater to the creative users.
Denver’s history is one full of ambitious infrastructure projects, including its international airport and regional light rail and highway reconstruction projects, and industrial product has been a direct beneficiary. Denver’s industrial market is largely driven by regional economic factors, as opposed to the national or global economies. The market’s strong recovery following the economic downturn has been based on growth within a broad range of industries, including the food, energy and retail sectors, with additional e‐commerce demand forecasted. The recovery of Denver’s housing market has also played a significant role, as metro‐Denver hitting all‐time high housing prices this Spring has pushed new home development. The industrial market is doing exceptionally well, as demonstrated by 2012’s record absorption and a below 5% vacancy rate, particularly in larger bulk warehouses and distribution centers catering to users over 100,000 SF. Availability is limited in these categories and lease rates have reached levels that allow speculative development to begin in earnest. Fundamentals should remain strong and we will seek properties that locked in below market rates and benefit from a strengthening market.