In terms of leasing activity, C&W says it amounted to just under 2.3 million square feet in first quarter 2012, which is down 19.6% from the same period one year ago, but still in line with long-run historical averages for the market here. “Vacancy rates are likely to trend downward for the balance of this year and rental rates for higher-end properties should continue to rise,” says Cushman & Wakefield research.

On the investor front, the intensified office recovery spurs institutional capital to Denver, according to Marcus & Millichap Real Estate Investment Services’ Michael Hoffman, first vice president in the Denver office. “Denver’s office market recovery will accelerate, but operations will vary significantly by asset quality and location. Close-in parts of the Southeast and Southwest submarkets stand to attract more high-tech firms as Arrow Electronics moves its headquarters to Englewood, supporting class A and class B-plus demand,” says Hoffman. “While top-tier space in the CBD will appeal to corporate tenants and professional and business services firms, the submarket may experience some volatility if CenturyLink vacates Qwest’s former headquarters upon lease expiration this summer.”

Hoffman adds that vacancy in the Northwest submarket improved significantly last year, however, “the late-2012 delivery of the 185,000-square-foot Eos at Interlocken could overshadow otherwise healthy space demand in the area, limiting rent growth and concession burn among competing properties.”

Similar to last year, the Northeast and far-reaching parts of the Southeast submarkets stand to post the softest conditions as expanding companies look to established business hubs and more densely populated areas, says Hoffman. “Deals over $10 million will drive stronger transaction velocity in 2012, as large private funds, REITs and institutions target high-quality assets in the

CBD, Denver Tech Center, LoDo and Greenwood Village,” he says. “The market for smaller properties will also remain healthy, particularly for deals below $2.5 million, which account for more than 60% of all sales.”

The majority of the market’s distress assets fall into that price range, Hoffman adds, which he says generally appeals to local private investors and owner-users. “In recent quarters, owner-users and value-add investors have also been targeting small to mid-size office properties that are not necessarily “distressed” but post elevated vacancy or face near-term lease expirations. This trend will persist through 2012 as local businesses take advantage of attractive property prices and still-low interest rates.”

According to Barry Dorfman, president of the Rocky Mountain Region at Jones Lang LaSalle, “the lack of large blocks of space pushes developers to dust off plans.” According to Dorfman, growth in the oil and gas industry will continue to be an economic driver throughout 2012, and leasing activity is expected to increase in the coming quarters. “Net absorption will remain positive throughout the market, further pushing vacancy downward and rates upward. Landlords will gain leverage in the CBD and a few of the suburban submarkets, and will offer less free rent and fewer tenant concessions.”

To view relevant Denver data charts, see below:

SOURCE: Marcus & Millichap

SOURCE: Marcus & Millichap

SOURCE: Marcus & Millichap

SOURCE: Marcus & Millichap

SOURCE: Cushman & Wakefield

SOURCE: Cushman & Wakefield

SOURCE: Cushman & Wakefield