(To read more on the net lease market, click here.)
DENVER-The Denver office market began 2006 with moderate absorption, a decrease in sublease space and lease rates holding steady, according to a first-quarter report from the local office of CB Richard Ellis.
The direct net absorption was 259,078 sf, with mixed results among the submarkets, the report notes. However, much of the decrease in sublease space came from leasing, rather than returning to direct space. This sets the stage for greater direct absorption in the future, according to CBRE.
Tenants, however, aren't yet facing sticker shock in most submarkets. Lease rates are relatively flat, ending the quarter at an average of $17.07 per sf. Vacancies also are fairly flat, which decreased only slightly to 15.5%, down from 15.7% the previous quarter.
Continuing the trend that began to emerge last year, large tenants--both local and out of state--are becoming more active in the market. For example, Rio Tinto Minerals, as previously reported by GlobeSt.com, is moving its world headquarters to the Denver area and will be leasing about 100,000 sf.
"While developers remained disciplined, interest and optimism in the Denver Metro office market is increasing with many new proposed construction projects," the report notes. In addition, current construction activity increased again slightly from last quarter, with 308,541 sf of office currently under way throughout the metro area.
Boding well for the office market, unemployment continued to decrease at the local, state and national levels year-over-year, and the Denver Metro area added nearly 25,000 jobs in 2005. This job growth has contributed to an increased demand for office space and is expected to continue throughout 2006.
"The overall outlook for the Denver office market continues to be measured growth in the beginning of 2006," CBRE projects. "Market conditions should continue the improvement trend seen over the last two years sustaining a high level of activity. Landlords have become more aggressive in healthier submarkets, reducing concessions and increasing asking lease rates in most submarkets, and this trend is expected to continue through the rest of 2006."
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