The CoStarOffice Report    F I R S T   Q U A R T E R   2 0 1 1 Denver Office Market
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DENVER – FIRST QUARTER 2011                                                     Denver Office Market                      ...
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DENVER – FIRST QUARTER 2011                                                        Denver Office Market              Multi...
FIRST QUARTER 2011 – DENVER                                                                         Denver Office Market  ...
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DENVER – FIRST QUARTER 2011                                                                                           Denv...
FIRST QUARTER 2011 – DENVER                                                                             Denver Office Mark...
DENVER – FIRST QUARTER 2011                                                  Denver Office Market                         ...
Denver Office Market Real Estate Stats
Denver Office Market Real Estate Stats
Denver Office Market Real Estate Stats
Denver Office Market Real Estate Stats
Denver Office Market Real Estate Stats
Denver Office Market Real Estate Stats
Denver Office Market Real Estate Stats
Denver Office Market Real Estate Stats
Denver Office Market Real Estate Stats
Denver Office Market Real Estate Stats
Denver Office Market Real Estate Stats
Denver Office Market Real Estate Stats
Denver Office Market Real Estate Stats
Denver Office Market Real Estate Stats
Denver Office Market Real Estate Stats
Denver Office Market Real Estate Stats
Denver Office Market Real Estate Stats
Denver Office Market Real Estate Stats
Denver Office Market Real Estate Stats
Denver Office Market Real Estate Stats
Denver Office Market Real Estate Stats
Denver Office Market Real Estate Stats
Denver Office Market Real Estate Stats
Denver Office Market Real Estate Stats
Denver Office Market Real Estate Stats
Denver Office Market Real Estate Stats
Denver Office Market Real Estate Stats
Denver Office Market Real Estate Stats
Denver Office Market Real Estate Stats
Denver Office Market Real Estate Stats
Denver Office Market Real Estate Stats
Denver Office Market Real Estate Stats
Denver Office Market Real Estate Stats
Denver Office Market Real Estate Stats
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Q1 2011 Denver Office Market Real Estate Stats

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Denver Office Market Real Estate Stats

  1. 1. The CoStarOffice Report F I R S T Q U A R T E R 2 0 1 1 Denver Office Market
  2. 2. FIRST QUARTER 2011 – DENVER Denver Office Market Table of Contents Table of Contents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A Methodology. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B Terms & Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C Market Highlights & Overview. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 CoStar Markets & Submarkets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Employment & Tenant Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Employment & Unemployment Analysis Tenant Profiles Inventory & Development Analysis. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Construction Activity Map Inventory & Development Analysis Select Top Under Construction Properties Select Top Deliveries Figures at a Glance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Figures at a Glance by Class & Market Figures at a Glance by Class & Submarket Figures at a Glance Grouped by CBD vs Suburban Historical Figures at a Glance Leasing Activity Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Leasing Activity Map Leasing Activity Analysis Select Top Lease Transactions Sales Activity Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Sales Activity Analysis Select Top Sales Transactions Select Same Building Sales Select Land Sales Analysis of Individual CoStar Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Aurora Market Boulder Market Broomfield Market Central Business District Market Clear Creek County Market Colorado Blvd/Glendale Market Elbert County Market Fort Collins/Loveland Market Gilpin County Market Longmont Market Midtown Market North Denver Market Northeast Denver Market Northwest Denver Market Park County Market Parker/Castle Rock Market Southeast Denver Market Southwest Denver Market Weld County Market West Denver Market©2011 COSTAR GROUP, INC. THE COSTAR OFFICE REPORT A
  3. 3. DENVER – FIRST QUARTER 2011 Denver Office Market Methodology The CoStar Office Report, unless specifically stated otherwise, calculates office statistics using CoStar Group’s entire database of existing and under construction office buildings in each metropolitan area. Included are office, office condominium, office loft, office medical, all classes and all sizes, and both multi-tenant and single-tenant buildings, including owner-occupied buildings. CoStar Groups national database includes approximately 71.7 billion square feet of coverage in 3 million properties. All rental rates reported in the CoStar Office Report have been converted to a Full Service equivalent rental rate. For information on subscribing to CoStar’s other products and services, please contact us at 1-877-7COSTAR, or visit our web site at www.costar.com © Copyright 2010 CoStar Group, Inc. All Rights Reserved. Although CoStar makes efforts to ensure the accuracy and reliability of the information contained herein, CoStar makes no guarantee, representation or warranty regarding the quality, accuracy, timeliness or completeness of the information. The publication is provided ‘as is’ and CoStar expressly disclaims any guarantees, representations or warranties of any kind, including those of MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. CoStar Group, Inc. 1331 L ST NW • Washington, DC USA 20005 • (800) 204-5960 • www.costar.com • NASDAQ: CSGPB THE COSTAR OFFICE REPORT ©2011 COSTAR GROUP, INC.
  4. 4. FIRST QUARTER 2011 – DENVER Denver Office Market Terms & Definitions Availability Rate: The ratio of available space to total rentable Deliveries: Buildings that complete construction during a specified space, calculated by dividing the total available square feet by the period of time. In order for space to be considered delivered, a total rentable square feet. certificate of occupancy must have been issued for the property. Available Space: The total amount of space that is currently Delivery Date: The date a building completes construction and being marketed as available for lease in a given time period. It receives a certificate of occupancy. includes any space that is available, regardless of whether the Developer: The company, entity or individual that transforms raw space is vacant, occupied, available for sublease, or available at land to improved property by use of labor, capital and entrepre- a future date. neurial efforts. Build-to-Suit: A term describing a particular property, developed Direct Space: Space that is being offered for lease directly from specifically for a certain tenant to occupy, with structural features, the landlord or owner of a building, as opposed to space being systems, or improvement work designed specifically for the needs offered in a building by another tenant (or broker of a tenant) of that tenant. A build-to-suit can be leased or owned by the ten- trying to sublet a space that has already been leased. ant. In a leased build-to-suit, a tenant will usually have a long term lease on the space. Existing Inventory: The square footage of buildings that have received a certificate of occupancy and are able to be occupied Buyer: The individual, group, company, or entity that has pur- by tenants. It does not include space in buildings that are either chased a commercial real estate asset. planned, under construction or under renovation. Cap Rate: Short for capitalization rate. The Cap Rate is a calcula- Flex Building: A type of building designed to be versatile, which tion that reflects the relationship between one year’s net operating may be used in combination with office (corporate headquarters), income and the current market value of a particular property. research and development, quasi-retail sales, and including but The Cap Rate is calculated by dividing the annual net operating not limited to industrial, warehouse, and distribution uses. A typi- income by the sales price (or asking sales price). cal flex building will be one or two stories with at least half of the CBD: Abbreviation for Central Business District. (See also: rentable area being used as office space, have ceiling heights of 16 Central Business District) feet or less, and have some type of drive-in door, even though the door may be glassed in or sealed off. Central Business District: The designations of Central Business District (CBD) and Suburban refer to a particular geographic area Full Service Rental Rate: Rental rates that include all operating within a metropolitan statistical area (MSA) describing the level expenses such as utilities, electricity, janitorial services, taxes and of real estate development found there. The CBD is characterized insurance. by a high density, well organized core within the largest city of a Gross Absorption: The total change in occupied space over a given MSA. given period of time, counting space that is occupied but not Class A: A classification used to describe buildings that generally space that is vacated by tenants. Gross absorption differs from qualify as extremely desirable investment-grade properties and leasing Activity, which is the sum of all space leased over a certain command the highest rents or sale prices compared to other period of time. Unless otherwise noted Gross Absorption includes buildings in the same market. Such buildings are well located direct and sublease space. and provide efficient tenant layouts as well as high quality, and in Growth in Inventory: The change in size of the existing square some buildings, one-of-a-kind floor plans. They can be an archi- footage in a given area over a given period of time, generally due tectural or historical landmark designed by prominent architects. to the construction of new buildings. These buildings contain a modern mechanical system, and have above-average maintenance and management as well as the best Industrial Building: A type of building adapted for such uses as quality materials and workmanship in their trim and interior fit- the assemblage, processing, and/or manufacturing of products tings. They are generally the most attractive and eagerly sought from raw materials or fabricated parts. Additional uses include by investors willing to pay a premium for quality. warehousing, distribution, and maintenance facilities. The pri- mary purpose of the space is for storing, producing, assembling, Class B: A classification used to describe buildings that generally or distributing product. qualify as a more speculative investment, and as such, command lower rents or sale prices compared to Class A properties. Such Landlord Rep: (Landlord Representative) In a typical lease trans- buildings offer utilitarian space without special attractions, and action between an owner/landlord and tenant, the broker that have ordinary design, if new or fairly new; good to excellent represents the interests of the owner/landlord is referred to as the design if an older non-landmark building. These buildings typical- Landlord Rep. ly have average to good maintenance, management and tenants. Leased Space: All the space that has a financial lease obligation. They are less appealing to tenants than Class A properties, and It includes all leased space, regardless of whether the space is may be deficient in a number of respects including floor plans, currently occupied by a tenant. Leased space also includes space condition and facilities. They lack prestige and must depend being offered for sublease. chiefly on a lower price to attract tenants and investors. Leasing Activity: The volume of square footage that is commit- Class C: A classification used to describe buildings that gener- ted to and signed under a lease obligation for a specific building ally qualify as no-frills, older buildings that offer basic space and or market in a given period of time. It includes direct leases, command lower rents or sale prices compared to other buildings subleases and renewals of existing leases. It also includes any in the same market. Such buildings typically have below-average pre-leasing activity in planned, under construction, or under maintenance and management, and could have mixed or low renovation buildings. tenant prestige, inferior elevators, and/or mechanical/electrical systems. These buildings lack prestige and must depend chiefly Market: Geographic boundaries that serve to delineate core areas on a lower price to attract tenants and investors. that are competitive with each other and constitute a generally accepted primary competitive set of areas. Markets are building- Construction Starts: Buildings that began construction during a type specific, and are non-overlapping contiguous geographic specific period of time. (See also: Deliveries) designations having a cumulative sum that matches the boundar- Contiguous Blocks of Space: Space within a building that is, or is ies of the entire Region (See also: Region). Markets can be further able to be joined together into a single contiguous space. subdivided into Submarkets. (See also: Submarkets)©2011 COSTAR GROUP, INC. THE COSTAR OFFICE REPORT C
  5. 5. DENVER – FIRST QUARTER 2011 Denver Office Market Multi-Tenant: Buildings that house more than one tenant at a Seller: The individual, group, company, or entity that sells a par- given time. Usually, multi-tenant buildings were designed and ticular commercial real estate asset. built to accommodate many different floor plans and designs for SF: Abbreviation for Square Feet. different tenant needs. (See also: Tenancy). Single-Tenant: Buildings that are occupied, or intended to be Net Absorption: The net change in occupied space over a given occupied by a single tenant. (See also: Build-to-suit and Tenancy) period of time. Unless otherwise noted Net Absorption includes direct and sublease space. Sublease Space: Space that has been leased by a tenant and is being offered for lease back to the market by the tenant with Net Rental Rate: A rental rate that excludes certain expenses that the lease obligation. Sublease space is sometimes referred to as a tenant could incur in occupying office space. Such expenses sublet space. are expected to be paid directly by the tenant and may include janitorial costs, electricity, utilities, taxes, insurance and other Submarkets: Specific geographic boundaries that serve to delin- related costs. eate a core group of buildings that are competitive with each other and constitute a generally accepted primary competitive New Space: Sometimes called first generation space, refers to set, or peer group. Submarkets are building type specific (office, space that has never been occupied and/or leased by a tenant. industrial, retail, etc.), with distinct boundaries dependent on Occupied Space: Space that is physically occupied by a tenant. different factors relevant to each building type. Submarkets are It does not include leased space that is not currently occupied non-overlapping, contiguous geographic designations having a by a tenant. cumulative sum that matches the boundaries of the Market they are located within (See also: Market). Office Building: A type of commercial building used exclusively or primarily for office use (business), as opposed to manufactur- Suburban: The Suburban and Central Business District (CBD) ing, warehousing, or other uses. Office buildings may sometimes designations refer to a particular geographic area within a metro- have other associated uses within part of the building, i.e., retail politan statistical area (MSA). Suburban is defined as including all sales, financial, or restaurant, usually on the ground floor. office inventory not located in the CBD. (See also: CBD) Owner: The company, entity, or individual that holds title on a Tenancy: A term used to indicate whether or not a building is given building or property. occupied by multiple tenants (See also: Multi-tenant) or a single tenant. (See also: Single-tenant) Planned/Proposed: The status of a building that has been announced for future development but not yet started Tenant Rep: Tenant Rep stands for Tenant Representative. In a construction. typical lease transaction between an owner/landlord and tenant, the broker that represents the interests of the tenant is referred to Preleased Space: The amount of space in a building that has been as a Tenant Rep. leased prior to its construction completion date, or certificate of occupancy date. Time On Market: A measure of how long a currently available space has been marketed for lease, regardless of whether it is Price/SF: Calculated by dividing the price of a building (either vacant or occupied. sales price or asking sales price) by the Rentable Building Area (RBA). Under Construction: The status of a building that is in the process of being developed, assembled, built or constructed. A building is Property Manager: The company and/or person responsible for considered to be under construction after it has begun construc- the day-to-day operations of a building, such as cleaning, trash tion and until it receives a certificate of occupancy. removal, etc. The property manager also makes sure that the vari- ous systems within the building, such as the elevators, HVAC, and Vacancy Rate: A measurement expressed as a percentage of the electrical systems, are functioning properly. total amount of physically vacant space divided by the total amount of existing inventory. Under construction space generally Quoted Rental Rate: The asking rate per square foot for a par- is not included in vacancy calculations. ticular building or unit of space by a broker or property owner. Quoted rental rates may differ from the actual rates paid by Vacant Space: Space that is not currently occupied by a tenant, tenants following the negotiation of all terms and conditions in regardless of any lease obligation that may be on the space. a specific lease. Vacant space could be space that is either available or not avail- RBA: Abbreviation for Rentable Building Area. (See also: able. For example, sublease space that is currently being paid for by a tenant but not occupied by that tenant, would be considered Rentable Building Area) vacant space. Likewise, space that has been leased but not yet Region: Core areas containing a large population nucleus, that occupied because of finish work being done, would also be con- together with adjacent communities have a high degree of eco- sidered vacant space. nomic and social integration. Regions are further divided into Weighted Average Rental Rate: Rental rates that are calculated by market areas, called Markets. (See also: Markets) factoring in, or weighting, the square footage associated with each Relet Space: Sometimes called second generation or direct space, particular rental rate. This has the effect of causing rental rates refers to existing space that has previously been occupied by on larger spaces to affect the average more than that of smaller another tenant. spaces. The weighted average rental rate is calculated by taking Rentable Building Area: (RBA) The total square footage of a the ratio of the square footage associated with the rental rate on building that can be occupied by, or assigned to a tenant for the each individual available space to the square footage associated purpose of determining a tenant’s rental obligation. Generally with rental rates on all available spaces, multiplying the rental rate RBA includes a percentage of common areas including all hall- by that ratio, and then adding together all the resulting numbers. ways, main lobbies, bathrooms, and telephone closets. Unless specifically specified otherwise, rental rate averages include both Direct and Sublet available spaces. Rental Rates: The annual costs of occupancy for a particular space quoted on a per square foot basis. Year Built: The year in which a building completed construction and was issued a certificate of occupancy. Sales Price: The total dollar amount paid for a particular property at a particular point in time. YTD: Abbreviation for Year-to-Date. Describes statistics that are cumulative from the beginning of a calendar year through what- Sales Volume: The sum of sales prices for a given group of build- ever time period is being studied. ings in a given time period.D THE COSTAR OFFICE REPORT ©2011 COSTAR GROUP, INC.
  6. 6. FIRST QUARTER 2011 – DENVER Denver Office Market OVERVIEW Denver’s Vacancy Decreases to 13.7% Net Absorption Positive 392,167 SF in the QuarterT he Denver Office market ended the first quarter 2011 positive 660,920 square feet in the fourth quarter 2010, positive with a vacancy rate of 13.7%. The vacancy rate was 519,315 in the third quarter 2010, and positive 311,329 in the down over the previous quarter, with net absorption second quarter 2010.totaling positive 392,167 square feet in the first quarter. Vacant The Class-B office market recorded net absorption of nega-sublease space decreased in the quarter, ending the quarter at tive (253,831) square feet in the first quarter 2011, compared to1,105,978 square feet. Rental rates ended the first quarter at positive 232,261 square feet in the fourth quarter 2010, negative$19.79, a decrease over the previous quarter. A total of six (434,446) in the third quarter 2010, and negative (172,426) in thebuildings delivered to the market in the quarter totaling 400,816 second quarter 2010.square feet, with 615,403 square feet still under construction at The Class-C office market recorded net absorption of nega-the end of the quarter. tive (39,811) square feet in the first quarter 2011 compared to positive 113,597 square feet in the fourth quarter 2010, positiveAbsorption 45,504 in the third quarter 2010, and positive 111,943 in the Net absorption for the overall Denver office market was second quarter 2010.positive 392,167 square feet in the first quarter 2011. That Net absorption for Denver’s central business district wascompares to positive 1,006,778 square feet in the fourth quarter positive 46,662 square feet in the first quarter 2011. That com-2010, positive 130,373 square feet in the third quarter 2010, and pares to positive 246,088 square feet in the fourth quarter 2010,positive 250,846 square feet in the second quarter 2010. positive 293,531 in the third quarter 2010, and positive 123,184 Tenants moving out of large blocks of space in 2011 include: in the second quarter 2010.WildBlue Communications, Inc. moving out of 103,318 square Net absorption for the suburban markets was positivefeet at Greenwood Corporate Plaza - Building 1; Pfizer Inc. 345,505 square feet in the first quarter 2011. That comparesmoving out of 72,596 square feet at Peakview Tower; and Rally to positive 760,690 square feet in fourth quarter 2010, negativeSoftware Development Corporation moving out of 56,938 square (163,158) in the third quarter 2010, and positive 127,662 in thefeet at Jack MacAllister Center. second quarter 2010. Tenants moving into large blocks of space in 2011 include:Childrens Hospital moving into 150,000 square feet at Fitzsimons VacancyVillage 100; LGS Innovations moving into 133,352 square feet The office vacancy rate in the Denver market area decreasedat Westmoor Technology Park - Bldg Nine; and WildBlue to 13.7% at the end of the first quarter 2011. The vacancy rateCommunications, Inc. moving into 98,445 square feet at Parkside was 13.8% at the end of the fourth quarter 2010, 14.2% at theOffice Plaza at Inverness. end of the third quarter 2010, and 14.1% at the end of the second The Class-A office market recorded net absorption of posi- quarter 2010.tive 685,809 square feet in the first quarter 2011, compared to Class-A projects reported a vacancy rate of 13.1% at the Vacancy Rates by Class 1999-2011 A B C Total Market 25% 20% Vacancy Rate 15% 10% 5% 0% 1999 2000 2000 2001 2001 2002 2002 2003 2003 2004 2004 2005 2005 2006 2006 2007 2007 2008 2008 2009 2009 2010 2010 4q 2q 4q 2q 4q 2q 4q 2q 4q 2q 4q 2q 4q 2q 4q 2q 4q 2q 4q 2q 4q 2q 4q Source: CoStar Property® Absorption & Deliveries©2011 COSTAR GROUP, INC. THE COSTAR OFFICE REPORT U.S. Vacancy Comparison 1 Past 7 Quarters Past 7 Quarters
  7. 7. DENVER – FIRST QUARTER 2011 Denver Office Market OVERVIEW end of the first quarter 2011, 13.8% at the end of the fourth Denver’s Class-A projects reported vacant sublease space of quarter 2010, 14.8% at the end of the third quarter 2010, and 653,714 square feet at the end of first quarter 2011, down from 15.1% at the end of the second quarter 2010. the 828,895 square feet reported at the end of the fourth quarter Class-B projects reported a vacancy rate of 15.2% at the end 2010. There were 860,396 square feet of sublease space vacant of the first quarter 2011, 14.9% at the end of the fourth quarter at the end of the third quarter 2010, and 792,620 square feet at 2010, 15.0% at the end of the third quarter 2010, and 14.6% at the end of the second quarter 2010. the end of the second quarter 2010. Class-B projects reported vacant sublease space of 426,745 Class-C projects reported a vacancy rate of 8.9% at the end square feet at the end of the first quarter 2011, down from the of the first quarter 2011, 8.7% at the end of fourth quarter 2010, 474,093 square feet reported at the end of the fourth quarter 9.3% at the end of the third quarter 2010, and 9.5% at the end 2010. At the end of the third quarter 2010 there were 501,384 of the second quarter 2010. square feet, and at the end of the second quarter 2010 there were The overall vacancy rate in Denver’s central business district 649,025 square feet vacant. at the end of the first quarter 2011 decreased to 13.4%. The Class-C projects reported decreased vacant sublease space vacancy rate was 13.5% at the end of the fourth quarter 2010, from the fourth quarter 2010 to the first quarter 2011. Sublease 14.3% at the end of the third quarter 2010, and 15.2% at the end vacancy went from 26,919 square feet to 25,519 square feet dur- of the second quarter 2010. ing that time. There was 16,172 square feet at the end of the third The vacancy rate in the suburban markets changed to 13.8% quarter 2010, and 15,475 square feet at the end of the second in the first quarter 2011. The vacancy rate was 13.8% at the end quarter 2010. of the fourth quarter 2010, 14.2% at the end of the third quarter Sublease vacancy in Denver’s central business district stood B C Total Market 2010, and 13.9% at the end of the second quarter 2010. at 339,498 square feet at the end of the first quarter 2011. It was 395,699 square feet at the end of the fourth quarter 2010, Largest Lease Signings 376,306 square feet at the end of the third quarter 2010, and The largest lease signings occurring in 2011 included: the 376,331 square feet at the end of the second quarter 2010. 151,331-square-foot lease signed by Bridgepoint Education at Sublease vacancy in the suburban markets ended the first Park Central in the Central Business District market; the 150,000- quarter 2011 at 766,480 square feet. At the end of the fourth square-foot deal signed by Childrens Hospital at Fitzsimons quarter 2010 sublease vacancy was 934,208 square feet, was Village 100 in the Aurora market; and the 26,570-square-foot 1,001,646 square feet at the end of the third quarter 2010, lease signed by ThyssenKrupp Robins, Inc. at Plaza Tower One in and was 1,080,789 square feet at the end of the second quarter the Southeast Denver market. 2010. Sublease Vacancy Rental Rates The amount of vacant sublease space in the Denver market The average quoted asking rental rate for available office decreased to 1,105,978 square feet by the end of the first quarter004 2005 space, all classes, was $19.79 per square foot per year at the end 2011,2006 2006 2007 2007 2008 feet at the end of the fourth quarter 2005 from 4q 2q 4q 2q 2008 2009 2009 2010 2010 1,329,907 square 4q 2q 4q 2q 4q4q 2q 4q 2q of the first quarter 2011 in the Denver market area. This rep- 2010. There was 1,377,952 square feet vacant at the end of the resented a 0.1% decrease in quoted rental rates from the end of third quarter 2010 and 1,457,120 square feet at the end of the the fourth quarter 2010, when rents were reported at $19.81 per second quarter 2010. square foot. U.S. Vacancy Comparison The average quoted rate within the Class-A sector was Past 7 Quarters $23.65 at the end of the first quarter 2011, while Class-B rates Denver United States stood at $18.16, and Class-C rates at $14.76. At the end of the 16.0% fourth quarter 2010, Class-A rates were $23.83 per square foot, 14.0% Class-B rates were $18.09, and Class-C rates were $14.81. 12.0% The average quoted asking rental rate in Denver’s CBD was $24.91 at the end of the first quarter 2011, and $18.68 in the Vacancy Rate 10.0% suburban markets. In the fourth quarter 2010, quoted rates were 8.0% $24.71 in the CBD and $18.72 in the suburbs. 6.0% Deliveries and Construction 4.0% During the first quarter 2011, six buildings totaling 400,816 2.0% square feet were completed in the Denver market area. This com- pares to nine buildings totaling 245,523 square feet that were 0.0% 2009 3q 2009 4q 2010 1q 2010 2q 2010 3q 2010 4q 2011 1q completed in the fourth quarter 2010, six buildings totaling Source: CoStar Property• 2 THE COSTAR OFFICE REPORT ©2011 COSTAR GROUP, INC.
  8. 8. 5% 0% FIRST QUARTER 2011 – DENVER 1999 2000 2000 2001 2001 2002 2002 2003 2003 2004 2004 20 Denver Office Market 4q 2q 4q 2q 4q 2q 4q 2q 4q 2q 4q 2 OVERVIEW Source: CoStar Property®428,491 square feet completed in the third quarter 2010, and Absorption & Deliveries521,049 square feet in three buildings completed in the second Past 7 Quartersquarter 2010. Net Absorption Deliveries There were 615,403 square feet of office space under con- 1.2 1.10struction at the end of the first quarter 2011. 1.01 1.0 Some of the notable 2011 deliveries include: FitzsimonsVillage 100, a 168,029-square-foot facility that delivered in first 0.8 0.61quarter 2011 and is now 90% occupied, and Red Rocks Medical 0.6 0.52 Millions SF 0.46Center, a 118,000-square-foot building that delivered in first 0.43 0.390.40 0.4quarter 2011 and is now 88% occupied. 0.26 0.19 0.25 0.25 0.13 The largest projects underway at the end of first quarter 0.22011 were Davita Headquarters, a 270,000-square-foot building 0.0with 100% of its space pre-leased, and 199 12th St, a 100,000- (0.2)square-foot facility that is 100% pre-leased. (0.20) (0.4)Inventory 2009 3q 2009 4q 2010 1q 2010 2q 2010 3q 2010 4q 2011 1q Total office inventory in the Denver market area amounted Source: CoStar Property•to 180,722,334 square feet in 6,907 buildings as of the end of Total office building sales activity in 2010 was up comparedthe first quarter 2011. The Class-A office sector consisted of to 2009. In the twelve months of 2010, the market saw 77 office57,509,339 square feet in 304 projects. There were 3,731 Class-B sales transactions with a total volume of $712,283,134. The pricebuildings totaling 100,939,911 square feet, and the Class-C sector per square foot averaged $132.66. In the same twelve months ofconsisted of 22,273,084 square feet in 2,872 buildings. Within 2009, the market posted 31 transactions with a total volume ofthe Office market there were 489 owner-occupied buildings $260,696,800. The price per square foot averaged $109.40.accounting for 18,365,442 square feet of office space. Cap rates have been lower in 2010, averaging 9.30% com- pared to the same period in 2009 when they averaged 9.41%.Sales Activity One of the largest transactions that has occurred within Tallying office building sales of 15,000 square feet or larger, the last four quarters in the Denver market is the sale of 1800Denver office sales figures rose during the fourth quarter 2010 in Larimer in Denver. This 495,518-square-foot office building soldterms of dollar volume compared to the third quarter of 2010. for $213,223,000, or $430.30 per square foot. The property sold In the fourth quarter, 32 office transactions closed with on 2/15/2011.a total volume of $347,710,188. The 32 buildings totaled2,548,291 square feet and the average price per square footequated to $136.45 per square foot. That compares to 16 trans- Reports compiled by: Ethan Reed, CoStar Sr. Research Manager.actions totaling $119,375,872 in the third quarter 2010. The totalsquare footage in the third quarter was 1,026,355 square feet foran average price per square foot of $116.31.©2011 COSTAR GROUP, INC. THE COSTAR OFFICE REPORT 3
  9. 9. DENVER – FIRST QUARTER 2011 Denver Office Market MARKETS CoStar Markets & SubmarketsIn analyzing metropolitan areas in the U.S., CoStar has developed geographic designations to help group properties together, calledRegions, Markets and Submarkets. Regions are the equivalent of metropolitan areas, or areas containing a large population nucleus,that together with adjacent communities have a high degree of economic and social integration. Regions are then divided intoMarkets, which are core areas within a metropolitan area that are known to be competitive with each other in terms of attractingand keeping tenants. Markets are then further subdivided into smaller units called Submarkets, which serve to delineate a core groupof buildings that are competitive with each other and constitute a generally accepted competitive set, or peer group. Markets Submarkets Aurora Aurora Boulder Boulder Boulder County Broomfield Broomfield County Central Business District Central Business District* LoDo* Clear Creek County Clear Creek County Colorado Blvd/Glendale Cherry Creek Colorado Blvd/I-25 Glendale Elbert County Elbert County Fort Collins/Loveland Fort Collins/Loveland Gilpin County Gilpin County Longmont Longmont Midtown Capitol Hill Platte River South Midtown North Denver North Denver Northeast Denver East I-70/Montbello Northeast Denver Northwest Denver Northwest Denver Park County Park County Parker/Castle Rock Parker/Castle Rock Southeast Denver Arapahoe Rd Centennial Denver Tech Center East Hampden Greenwood Village Highlands Ranch Inverness Meridian Panorama/Highland Park Southwest Denver Southwest Denver Weld County Weld County West Denver West Denver* Submarkets comprising the CBD. For statistics reference the CBD vs Suburban Figures at a Glance Page.4 THE COSTAR OFFICE REPORT ©2011 COSTAR GROUP, INC.
  10. 10. FIRST QUARTER 2011 – DENVER Denver Office Market EMPLOYMENT AND TENANT Total Employment by Industry Total Employment Growth Percent of Total Employment by Industry Total Number of Jobs Added Per Year Natural Resources & Denver U.S. Average 5% Mining 4.0% 0% 21% Construction 3.0% Manufacturing 16% 2.0% Trade, Transportation & 4% Utilities Information 1.0% Percent Growth Financial Activities 0.0% 8% 4% Professional & Business -1.0% Services Education & Health -2.0% Services Leisure & Hospitality -3.0% 11% Other Services -4.0% 18% Government -5.0% 13% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010Source: Department of Labor, Bureau of Labor Statistics Source: Department of Labor, Bureau of Labor Statistics Office* Employment Growth Office* Employment Growth Cumulative Growth in Office* Jobs Over the Past 5 Years Number of Office* Jobs Added Per Year Employment Inventory Denver U.S. Average Market Growth Growth Difference 5.0% Atlanta -9.40% 6.10% -15.50% 4.0% 3.0% Boston -4.40% 2.70% -7.10% 2.0% Chicago -9.10% 3.60% -12.70% 1.0% Percent Growth Dallas/Ft Worth 0.00% 6.50% -6.50% 0.0% -1.0% Denver -4.20% 4.80% -9.00% -2.0% Los Angeles -11.20% 2.80% -14.00% -3.0% -4.0% New York City -2.90% 1.50% -4.40% -5.0% Seattle/Puget Sound -5.10% 9.30% -14.40% -6.0% Tampa/St Petersburg -14.10% 6.70% -20.80% -7.0% -8.0% Washington -1.00% 7.20% -8.20% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010Source: Department of Labor, Bureau of Labor Statistics Source: Department of Labor, Bureau of Labor Statistics. * Office employment is defined as jobs in the Information, Financial Activities, and Professional & Business Services industries Historical Unemployment Rates Denver U.S. Average 12.0% 10.0% Percent Unemployment 8.0% 6.0% 4.0% 2.0% 0.0% 2000 2000 2001 2001 2002 2002 2003 2003 2004 2004 2005 2005 2006 2006 2007 2007 2008 2008 2009 2009 2010 2010 1q 3q 1q 3q 1q 3q 1q 3q 1q 3q 1q 3q 1q 3q 1q 3q 1q 3q 1q 3q 1q 3qSource: Department of Labor, Bureau of Labor Statistics.©2011 COSTAR GROUP, INC. THE COSTAR OFFICE REPORT 5
  11. 11. DENVER – FIRST QUARTER 2011 Denver Office Market EMPLOYMENT AND TENANTTenant by Size Range Tenants by Lease ExpirationBased on Total Number of Tenants Based on Total Square Footage of Tenants 75,000 SF & Up 1.6% 2017 6.8% 50,000-74,999 SF 1.0% 2016 7.7% 25,000-49,999 SF 3.1% 2015 10.3% 10,000-24,999 SF 8.8% 2014 11.4% 5,000-9,999 SF 11.2% 2013 13.8% 2,500-4,999 SF 19.1% Up to 2,499 SF 55.3% 2012 16.1% 0% 10% 20% 30% 40% 50% 60% 0% 5% 10% 15% 20% Percentage of Tenants Percentage of Tenants Source: CoStar Tenant® Source: CoStar Tenant®Tenants by Industry SF Per Employee by IndustryBased on Total Square Footage of Tenants Based on All Tenants Finance/Ins/RE 20.0% Communications 421.4 Services 12.4% Law Firms 408.7 Business-Service 9.9% Agri/Mining/Util 376.6 Manufacturing 9.2% Manufacturing 323.6 Medical 7.3% Services 282.8 Agri/Mining/Util 7.0% Medical 278.3 Transportation 6.8% Engineers/Archit 278.1 Engineers/Archit 6.0% Finance/Ins/RE 274.0 Communications 6.0% Business-Service 259.5 Law Firms 5.3% Accountants 253.7 Government 4.9% Transportation 185.1 Retailers/Wholes 3.7% Government 180.8 Accountants 1.5% Retailers/Wholes 178.6 0% 5% 10% 15% 20% 25% 0 50 100 150 200 250 300 350 400 450 Percentage of Tenants SF Per Employee Source: CoStar Tenant® Source: CoStar Tenant®6 THE COSTAR OFFICE REPORT ©2011 COSTAR GROUP, INC.
  12. 12. FIRST QUARTER 2011 – DENVER Denver Office Market INVENTORY & DEVELOPMENT Construction Highlights in Select CoStar Markets Color Coded by Under Construction Square Footage as a Percentage of Existing Inventory ������� ��� ���������� ���� � �� ����� ������ ��� �� ��������� �� �� �� �� �� ����� �������� ������� ��� ������ ����� ������� ��� ���������� ���� � �� ����� ������ ����� � �� ��������� �� ���� ��� �� �� ��� �� ��� ���������� ��� �� ��� ����� ������ ��� �� ��������� �� �� ������ �� ��� ���������� ����� � �� ����� ������ ��� �� �������� ������������� ��������� �� �� ��� ���������� ��� �� ����� ������ ��� �� ��������� �� �� ��� �� ������������ ������ ���� ���� ����� ����� �� ����� ����� �� ����� ����� �� ����� ���� ����� Source: CoStar Property®©2011 COSTAR GROUP, INC. THE COSTAR OFFICE REPORT 7
  13. 13. DENVER – FIRST QUARTER 2011 Denver Office Market INVENTORY & DEVELOPMENT Historical Deliveries 1982 - 2011 Deliveries Average Delivered SF 16.0 14.7 14.0 12.0 10.0 9.4 Millions of SF 8.5 8.1 7.6 7.3 7.4 8.0 6.0 4.6 4.0 4.0 3.4 2.9 2.2 2.5 2.5 2.2 1.8 2.0 2.2 2.1 1.8 1.8 2.0 1.1 1.1 1.4 0.6 0.6 0.8 0.7 0.4 0.4 0.0 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Source: CoStar Property® * Future deliveries based on current under construction buildings. Construction Activity Markets Ranked by Under Construction Square Footage Under Construction Inventory Average Bldg Size Market # Bldgs Total RBA Preleased SF Preleased % All Existing U/C Midtown 2 321,000 321,000 100.0% 13,086 160,500 West Denver 3 230,006 200,000 87.0% 20,258 76,669 Parker/Castle Rock 1 37,500 25,125 67.0% 12,431 37,500 Southwest Denver 2 10,800 10,800 100.0% 18,366 5,400 Longmont 1 7,500 7,500 100.0% 9,965 7,500 Broomfield 1 6,939 6,939 100.0% 49,424 6,939 Fort Collins/Loveland 1 1,658 0 0.0% 11,644 1,658 Park County 0 0 0 0.0% 3,319 0 Boulder 0 0 0 0.0% 16,927 0 Southeast Denver 0 0 0 0.0% 53,673 0 All Other 0 0 0 0.0% 31,692 0 Totals 11 615,403 571,364 92.8% 26,165 55,946 Source: CoStar Property® Recent Deliveries Future Deliveries Leased & Un-Leased SF in Deliveries Since 2007 Preleased & Un-Leased SF in Properties Scheduled to Deliver Leased Un-Leased Preleased Un-Leased 3.5 300 3.0 250 2.5 200 T Thousands of SF Millions of SF 2.0 150 1.5 100 1.0 50 0.5 0.0 0 2007 2008 2009 2010 2011 2011 2q 2011 4q 2012 3q Source: CoStar Property® Source: CoStar Property®8 THE COSTAR OFFICE REPORT ©2011 COSTAR GROUP, INC.
  14. 14. FIRST QUARTER 2011 – DENVER Denver Office Market INVENTORY & DEVELOPMENT Historical Construction Starts & Deliveries Square Footage Per Quarter Starting and Completing Construction Construction Starts Deliveries 1.4 1.31 1.2 1.0 0.90 Millions of SF 0.8 0.57 0.59 0.59 0.6 0.52 0.45 0.46 0.48 0.45 0.42 0.43 0.40 0.4 0.26 0.27 0.25 0.20 0.22 0.22 0.19 0.2 0.12 0.11 0.09 0.08 0.05 0.01 0.0 2008 1q 2008 2q 2008 3q 2008 4q 2009 1q 2009 2q 2009 3q 2009 4q 2010 1q 2010 2q 2010 3q 2010 4q 2011 1q Source: CoStar Property® Recent Deliveries by Project Size Breakdown of Year-to-Date Development Based on RBA of Project Building Size # Bldgs RBA SF Leased % Leased Avg Rate Single-Tenant Multi-Tenant < 50,000 SF 4 114,787 114,787 100.0% $26.00 66,000 48,787 50,000 SF - 99,999 SF 0 0 0 0.0% $0.00 0 0 100,000 SF - 249,999 SF 2 286,029 255,066 89.2% $30.76 0 286,029 250,000 SF - 499,999 SF 0 0 0 0.0% $0.00 0 0 >= 500,000 SF 0 0 0 0.0% $0.00 0 0 Source: CoStar Property® Recent Development by Tenancy Existing Inventory Comparison Based on RBA Developed for Single & Multi Tenant Use Based on Total RBA 2011 Deliveries Currently Under Construction By Class By Space Type 16% 11% 12% 19% 32% 56% 81% 84% 89% Class A Class B Class C Multi Single Multi Single Multi Single Source: CoStar Property® Source: CoStar Property®©2011 COSTAR GROUP, INC. THE COSTAR OFFICE REPORT 9
  15. 15. DENVER – FIRST QUARTER 2011 Denver Office Market INVENTORY & DEVELOPMENT������������������������������ ����������������������������������� ���������������������� ���� ������������������������ ���� ������������������������������� ����������� ������ ����������� ����������� ����������� ������� ����� ������� ����� ������� ����� ������ ���������� � ���������� � ���������� � ������� � ������� � ������� � ���������� ��� ���������� ��� ���������� ���� ������������� ������ ������������� ���������� ������������� ��� ���������������������������������� ���������������������������������� ��������������������������������� ������������ ������������������ ������������ ������������������ ������������ ������������������ ������������ ��������������������� ������������ ���������������������������� ������������ ��������������������������� ����������� ��� ��� ������� ����������� ��� ����������� ���������������������������� ����������� ��� � ��� ����������� ��� ����������� ��� � ����� ������������������������������ ���� ��������������������������� ���� �������������������������������� ����������� ������� ����������� ��������������������� ����������� ��������� ����� ������ ����� ������ ����� ������ ���������� � ���������� � ���������� � ������� � ������� � ������� � ���������� ���� ���������� ���� ���������� ���� ������������� ������ ������������� ��� ������������� ��� ���������������������������������� ���������������������������������� ���������������������������������� ������������ ������������������ ������������ ������������������ ������������ ������������������ ������������ �������������������� ������������ ������������� ������������ ������������������������ ����������� �������������������� ����������� ��� �������� ����������� ������������ ����������� ��� ����������� ��� � � ����������� ��� ����������������������������������������� ����������������������������������� ������������������� ���� ����������� ���� ����������� ����������� ������� ����������� ����������� ����������� ����������� ����� ������� ����� ������� ����� ������� ���������� � ���������� � ���������� � ������� � ������� � ������� � ����������� ���� ����������� ���� ����������� ���� ������������� ��� ������������� ��� ������������� ��� ��������������������������������� ��������������������������������� ��������������������������������� ������������ ������������������ ������������ ������������������� ������������ ������������������� ���������￀%

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