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5 Things to Know About Q2 Denver Office and Industrial (JLL Report)

5 Things to Know About Q2 Denver Office and Industrial (JLL Report)

Denver Q2 Office

JLL has shared its Q2 Denver Office and Industrial Insight reports. Here’s a summary of each market:

5 Things to Know About Denver’s Second Quarter Office Performance:

  1. After a strong recoveryemployment for office workers has stagnated
  2. Assets five years old and newer consistent outperform the older ones
  3. Direct rental prices are falling moderately of their September 2023 peak
  4. After a short period of calm, tenants started renting out their spaces again
  5. Positive direct absorption and thinning development pipeline – achieve a balance

Denver Office Findings in Q2:

  • The number of job openings reached a record high of 24.8% in the second quarter, partly due to the introduction of flexible workplace arrangements in the technology sector.
  • For only the second time since the start of the pandemic, quarterly direct absorption revenue was positive.
  • Sublease availability increased in the quarter but declined over the past 12 months, remaining well above the long-term average
    by 5.0%, even if more is converted to immediate availability.
  • Landlords with ready-to-market space lowered asking rents slightly in Q2. Direct rates have declined in two of the last three quarters and have increased just $0.15 psf since last June.

Perspective

Projections show that office employment will improve steadily and moderately in the coming quarters. The share of tenants that cluster around the intention to at least maintain a stable footprint (rather than shrinking) will in turn continue to increase proportionally. Nevertheless, the remainder of 2024 will see rising vacancy and, more likely than not, compression in asking rent.

Denver’s Second Quarter Industrial Findings:

  • Construction capacity has fallen below 5 million square feet, which will help to keep vacancy under control in the future as fewer new products will enter the inventory empty and available. Recent deliveries are a major contributor to vacancy reached the current rate as pre-leasing in the Denver market is at historic lows.
  • New, class A product which was recently delivered has seen leasing successespecially in the Submarkets Southeast, North Central and North I-25. Tenants have consistently leased spaces in the size range of 10,000 to 60,000 square feet on the market, in favor of properties that can take up space.
  • The market is well positioned to recover in the second half of 2024. A significant amount of space has been positioned to absorb after tenants complete their build-outs. Several occupiers of more than 100,000 square feet are expected to move in Q3 and Q4 from 2024 and early 2025.
  • Tenants have continued to demonstrate a willingness to grow but it often takes longer to close a deal because many factors have to be taken into account.

Perspective

The industrial sector has seen notable success in recent years, although recent market conditions have had an impact. Factors such as negative absorption, elevated vacancy rates, and tepid rental growth have led to an adjustment in landlord leverage. Given the changing market conditions, several tenants have accepted a longer deal cycle as they prioritize optimizing their real estate footprint. Tenants moving more slowly have raised concerns among landlords, but rest assured that tenant demand remains strong across the market. Owner-occupiers have been active in the first half of 2024, buying and selling numerous buildings in tested industrial pockets. Larger occupiers have been eyeing both BTS and newly delivered spec products. Ultimately, Denver’s industrial market has shown resilience and the ability to adapt to occupier needs.