If you are interested in or looking for commercial real estate in Denver, you have come to the right place. Here, you will uncover the favorable conditions prevailing right now in the Mile-High city. Then, you will learn why this city’s commercial real estate market is popping as 2019 is coming to a close. Next, read some predictions about the Denver real estate market for 2020. Finally, you will discover what kind of opportunities abound in Denver, Colorado. Therefore, start or expand your business by taking advantage of the growing market in Denver.
Although it is true that no one can actually foresee the future with certainty in the commercial real estate market, there is some historical data that we can work with to plan for the future. Experts, mostly real estate professionals, mortgage consultants, and economists have published some compelling speculations. Come along as we part the mist and bring clarity to the Mile High City commercial real estate market in the weeks, months, and years to come. And at the same time, see the answers to some of the most frequently asked questions about commercial real estate in Denver.
To put it simply for you, we have assembled the most frequently asked questions about the commercial real estate market in the Denver area. Then, we have found some interesting answers that we are ready to share with you. After you read these answers, you will be equipped to make the best decisions regarding any investment you are thinking about in the near future. Therefore, read on and discover the answers to the most frequently asked questions about commercial real estate in Denver.
During 2019, although it is not over yet, there are some interesting numbers to look at. For example, we can see that there were 310 off-market restaurants, 500 off-market office spaces, and 208 off-market shopping centers in 2019. Each property with an approximate size of one acre, and a cap rate of almost 7 percent. This information just begins to give you an idea of how active the market has been so far this year!
Getting your hands on commercial space for real estate in Denver could get complicated at times according to the persistent competition that has been happening for several years now in Denver. Since 2017, the commercial real estate market has exhibited remarkable yields that have attracted and retained investors. This means that the market may soon be a battleground in its own right.
Going back a bit further in time, for example, office properties have demonstrated impressive returns based on the 22 properties sold in the first trimester of 2018. According to CBRE (Coldwell Banker Richard Ellis), which is a nationally recognized commercial real estate services and investment firm. These sales ended on an impressive $152 million deal with the Denver Tech Center pulling in $977.9 million. Sale prices commanded $316.58 per square foot, which saw a 29-percent increase from office deals made in the last quarter of 2017.
When it comes to mixed-use retail, additional space for restaurants, or smaller stores that fill the ground for urban apartment and office buildings, we will see that they remain in demand. Denver developers alone have obtained approximately 1.2 million square feet of retail space under construction with 313,000 square feet already accounted for. During that year, it saw a 9-percent increase compared to similar figures in 2019. The acquired retail space under construction was regarded as the highest amount since 2009. Lease rates also increased by 4.4 percent over the previous year.
New commercial construction accounted for over five million square feet of space in the industrial sector. That was arguably a significant improvement since 2001. Also, 2017 saw massive sales of high-profile, newly constructed office space. These sales also contributed to the infusion of substantial new capital. That has never happened before within the Denver commercial real estate market. The total construction investment accounted for $2 billion in 2017, which was a 7.1-percent increase since the previous year, with an extra 4.5 million square feet of construction projects still in the pipeline. Moreover, 51.6 percent of those building projects were pre-leased, which makes it evident that there is great tenant demand. The results are with incoming capital that will significantly alter the commercial real estate market in Denver.
Industrial lease rates are on the rise, coupled with minimal progress in new construction. Approximately three-quarters of the current pipeline is earmarked around Denver International Airport and in the northern part of the metro area. Such an intensive project can be attributed to the overwhelming purchase of goods online, which necessitates the construction of more warehouses and distribution centers. Residential real estate also accounted for significant growth to keep up with the rising populations flocking Denver for employment and investment opportunities.
For office tenants have had to stomach increasing lease rates, which are up a staggering 38 percent in Denver since they bottomed out in 2010. Ever since that time, the idea of owning a building in Denver seems intriguing. Add to that the low-interest rates are becoming a recurring topic in the news, and you will have tenants wanting to investigate purchase options to some degree before signing up for a long-term lease renewal.
Looking at the numbers from past years on the owner-user property market, the price fluctuations are great depending on the economy and market conditions. To share an easy example, in 2012, the average sale price was $73 per square foot. Now, in 2019 the average sale price hit $182 per square foot! So in this case, not being able to plan the timing of an exit from the property, to line up with the top of the real estate cycle, can result in a significant loss.
We know that ales prices will vary dramatically based on location, age, and condition of the building. There are also other factors like whether the building is portrayed as an investment or just a user building. Investment properties will have an associated cap rate and likely limited vacancy. User buildings are delivered vacant at closing to appeal to buyers that will occupy the building. Users have a different set of parameters than investors, so often they will pay more than an investor. The intrinsic value of operating a business in the building, along with a simple lease versus purchase analysis typically allows a user to justify a higher price.
Commercial real estate appraisals focus on what the general public will pay for a given property. Initially, comps are performed to fetch a quick valuation of a specific location. Comps are comparable sales. So, “sold” listings reflect more accurately, the value of the property you are investigating. Sellers may ask any price they wish, but it is important to know how much they can get for their properties. Therefore, if it sold, you will know how much someone was willing to pay. Then, when you compare three or more “sold” listings, you get a good idea about what the public is willing to pay – the market value.
Diving deeper into the value of a property, depending on the property type and use, commercial appraisers employ one, two, or three approaches to value such as the Cost Approach, Income Approach and Sales Comparison Approach.
The average commercial real estate appraisal cost in Denver will vary depending on the building. But, after reviewing research data showing the average cost of real estate appraisals in Denver, we have uncovered the following information: The average price reported for commercial real estate appraisals in Denver ranges from $350 to $450 dollars. This applies to a single-family home or condo, so in a larger commercial building, expect as much as double, triple, or more depending on the size and the approach used during the appraisal..
There are around 25 large buildings in Denver’s central business district. An almost obvious aspect to this is that they don’t just command the skyline, but they can also command some of the highest rents per square foot in the city. And when it comes to commercial rents, most of those listed are for triple net leases, which require the tenants to pay for all operating expenses. But there is nothing to worry about, since some of the buildings list rents for full-service gross leases. These leases bundle operating expenses right with the rent.
Current Denver market trends data indicates an increase of 4.8 percent in the median asking price per square foot, for office properties, compared to the prior three months. There was an increase of 11.0 percent compared to last year’s prices. County-wide, asking prices for office properties are 3.7 percent higher at $211 per square feet. This price is compared to the current median price of $202 for office properties in Denver. Also, there was an increase of +3.7 percent in the median asking price per square feet for Industrial properties. This was compared to data from the prior three months. That means an increase of +31.1 percent compared to last year’s prices. In addition, the asking prices for Industrial properties are 5.8 percent higher at $135 per square foot, which compares to the current median price of $144 for Industrial properties.
The cost of a buildout completely depends on the project. However, you can get an idea depending on where you are and the type of building you are looking to build. Denver’s local economy is an important factor in construction costs as well. Also, the type of construction you intend to build plays a strong role in the total cost. If we run some numbers, we will come to the conclusion that the average comes to 152 USD per square foot to construct a commercial building.
Although there may be a few projects under construction costing less than $200,000, those are rare projects. One of the biggest challenges has been a severe shortage of skilled labor. There was a time when we could point to Denver’s sub-3 percent unemployment rate as an indication of how great things were, but it is quickly becoming a real thorn in the side of developers. Framers who once made $20 an hour, for example, are now making $40 an hour. That makes labor tough to afford.
Now you know that if you are looking to get into the commercial real estate market for the first time, you are probably looking for the least expensive options. Although, these fair-priced buildings will likely be further away from the city. So, you may want to look at some new construction projects. Also, some of the big builders have move-in-ready properties. That means there is not as much stress for first-time buyers if they can find something in their price point. Why is that? It is because they do not submit competing offers on new constructions.
You as a buyer should always remember, when fewer homes are for sale, competition increases, which drives prices up. The more successful closings you can see around the area, the higher buyer activity you will find. Keep in mind that this also brings in more competition, which is an advantage for sellers.