Ranked among Forbes’s best cities for jobs in 2018, Denver is an economic boomtown these days. A talented workforce, international airport, relative affordability, active lifestyle and excellent climate all contribute to Denver’s success and evolution. The tight labor market is driving investment in the kind of office space that will help companies attract and retain top talent in a ferociously competitive landscape. Confidence in the Denver office market is strong, with more than three million square feet in the construction pipeline, and more to come.
Technology companies continue to fuel the population growth and leasing activity in Denver and along the Front Range. The coworking industry’s explosive expansion in Denver (now more than two million square feet) is a direct byproduct of the technology sector’s success. Coworking spaces offer the flexibility and timely delivery desired by fast-growing companies. Some additional trends we see emerging in 2019:
1. Business will continue to thrive
Denver boasts a balanced, highly diversified business sector with a strong presence in energy and aerospace, along with a rapidly expanding tech industry. Engineering, legal, accounting and consulting services are also growing. Prospects are brighter for the energy sector with the defeat of Colorado Ballot Proposition 112. The proposition ended fears of a legislatively driven slowdown; no new drilling buffer zone constraints will be placed on oil, gas and fracking projects.
2. Location remains key
It can be tough to find high-quality Front Range view space in the Denver Central Business District (CBD), but tenants continue to gravitate toward downtown, with many leaving the suburbs in a “flight to quality.” New construction is leasing up fast, and 2019 will deliver additional inventory. Fifteen major companies relocated or opened a new office in the center city in 2018, according to the Downtown Denver Partnership. One significant new tenant is retail company VF Corporation, which is relocating the global headquarters for its outdoor recreation brands from North Carolina to Denver. The Mile High City is a growing hub of technology and innovation, and many of the relocations and expansions were in the technology sector.
3. Absorption holds steady
Companies are starting to adopt a new approach to space design, usage and allocation, reflecting an ongoing commitment to space efficiency. The trend toward densification among law firms and in many other sectors is restraining space absorption. The beginning of 2018 witnessed a slight slowdown in absorption, but a quarter-over-quarter analysis illustrates it has picked up since Q2. Positive Q3 market indicators included a reversal of direction with improved quarterly leasing volume; minor growth in rent asking rates of 0.5 percent; and a 31 percent increase in office property sales during the first seven months of the year over the first seven months of 2017. Between Q1 and Q3, Denver absorbed 2.2 million square feet of office space, bested only by San Francisco and New York-Midtown.
Coworking company WeWork was by far the largest consumer of space in Denver in 2018, largely driven by its focus on “enterprise” clients. WeWork is catering to larger companies establishing a presence in Denver, but not ready to make longer-term lease commitments.
4. The cool factor
“Does this workplace reflect me and my personal tastes?” is a widespread requirement for job satisfaction among the younger generation of educated workers today. Surveys show this demographic enjoys working in collaborative spaces among their peers and mentors, across all industry groups. Going into 2019 and beyond, companies looking to hire need to take the “cool factor” into consideration when designing their office spaces.
5. The RiNo boom
New, mixed-use developments are proliferating in RiNo, Denver’s trendy River North Art District that is attracting young creative workers and entrepreneurs. Formerly a neglected industrial neighborhood whose spacious lofts attracted an adventurous community of artists, RiNo’s increasing popularity is an economic stimulus for the area. From the approval of 16-story buildings to the arrival of major development projects, the arts district is attracting some serious commerce (303magazine.com). Adjacent to the Platte River, RiNo will benefit from planned riverside park redevelopment as well as Denver’s growing public infrastructure system and Colorado’s FasTracks program, a $6.1 billion plan to build and operate high-speed rail lines and expand and improve bus service throughout the region. Significant corporate commitments from firms like HomeAdvisor and also another WeWork location anchor this location and validate its viability for office space users.
6. Transportation, a work in progress
The slow adoption of the city’s underused light rail is anticipated to speed up as traffic in Denver continues to get worse due to the continuing net inbound migration to the metro Denver area. In November, the Denver City Council approved a budget focused on housing and transportation, reported denverite.com. Public transit will receive about $1 million to enhance reliability. The city will spend about $27 million (a drop of $4 million from last year) to carry out the mayor’s “Mobility Action Plan,” reducing car dependency with improved walking, biking and transit options. However, Colorado’s Proposition 110, a statewide transportation funding measure, failed to pass on Election Day.
7. A coming labor shortage in the fastest growing sectors?
While labor shortages in Colorado and nationwide are predicted to continue to slow economic growth in 2019, Denver is thriving today. According to metrodenver.org, Denver’s unemployment rate of 2.4 percent beats today’s national rate (3.9 percent). Metro Denver’s low unemployment rate is hindering business expansion plans, according to global human resources consulting firm Korn Ferry, but hiring still continues apace. The impact of the demographic shift from Boomers to the smaller Gen X, Millennial and Gen Z cohorts is yet to be determined. Korn Ferry predicts that the not-too-distant future will see significant shortages of college-educated talent in the financial industry, technology, media, and telecommunications. Business and productivity can’t leap ahead if labor is a constraint.
8. Housing costs level off; perhaps a good thing?
Metro Denver has been one of the hottest housing markets in the country for several years. Housing prices rose by 10.8% on an annualized basis from 2014-2018 (Q2), and median prices now stand at $430,000. For the first time in four years, the increase in housing costs was reduced to 6.9% over the last two quarters. In addition, October 2018 showed an 11% drop in the number of homes sold compared to October 2017. As corporate relocations to Denver continue, the cost of housing is viewed by many as a negative. Perhaps a cooling off of the rapid price increases will help foster a continued steady inflow of companies to Metro Denver, along with the associated high-paying jobs.
Despite the continuing challenges of low unemployment and high housing costs, Denver’s overall appeal as a business market remains strong.