DENVER MARKET OUTLOOK DENVER METRO BOMA JUNE 8, 2016
OFFICE FUNDAMENTALS
OCCUPIERS ARE MAKING PEOPLE-CENTRIC DECISIONS WHEN SELECTING MARKETS Source: Americas Occupier Survey, March 2016. 3 COLORADO DENVER METRO BOMA
DENVER OFFICE FUNDAMENTALS Direct Vacancy Declines while Asking Rates Remain High Source: Research, Q1 2016. 4 COLORADO DENVER METRO BOMA
DOWNTOWN LEASING ACTIVITY (Q2 2015-Q1 2016) Government 18% Energy 21% Business Services 14% Creative 3% Legal 6% Other 7% Financial Services 12% Technology 8% Healthcare 11% Top 10 Deals Anadarko - 343,000 sf* Davita 265,300 sf Dept. of Regulatory Agencies 165,800 sf U.S. Attorneys Office -74,500 sf GSA 73,100 sf Hogan Lovells 73,100 sf Prologis 72,400 sf On Deck Capital 72,900 sf WeWork 71,600 sf Anschutz Corp. 55,900 sf* *renewal Source: Research, Q1 2016. 5 COLORADO DENVER METRO BOMA
SUBURBAN LEASING ACTIVITY (Q2 2015-Q1 2016) Creative Industries 18% Technology 18% Healthcare 17% Energy 1% Other Government4%Life Sciences 3% 4% Aerospace 6% Financial Services/Institution 7% Insurance 7% Business Services 8% Telecommunications 7% Top 10 Deals AECOM 282,800 sf Confidential Tech Co. 200,00 sf Lockheed Martin 171,000 sf* CH2M Hill 155,200 sf* Array Biopharma 121,900 sf Jackson National Life Ins. 118,900 sf* Urban Settlement Services 112,600 sf Norhrop Grumman 104,100 sf* Zimmer Biomet Spine 104,000 sf Met West 101,200 sf* *renewal Source: Research, Q1 2016. 6 COLORADO DENVER METRO BOMA
SUBLEASE IMPACT ANTICIPATED TO GROW DISPROPORTIONATE SHARE 44% of sublease availability DT is O&G vs. 22% of occupied footprint LEASE EXPIRATIONS NOT IN PLAY 40% of O&G leases expire in 2019 and 2021 WHO IS LEASING SUBLEASE SPACE? Oil and gas limited viability for other industries Source: Research, May 2016. 7 COLORADO DENVER METRO BOMA
DOWNTOWN OIL & GAS OCCUPIERS FOOTPRINT CONCENTRATED IN MID-CBD & CLASS B O&G FOOTPRINT Class A 28% Class B 69% Class C 3% Source: Research, May 2016. 8 COLORADO DENVER METRO BOMA
METRO DEMAND VS SUPPLY MSF 3.0 2.0 1.0 0 3.7 MSF delivered since 2012 2.8 MSF under construction (Q1 2016) 6% of 2012 market (6.5 MSF) (1.0) (2.0) 2007 2008 2009 2010 2011 2012 2013 2014 2015 Q1 2016 Under Construction Net Absorption Source: Research, Q1 2016. 9 COLORADO DENVER METRO BOMA
DENVER INDUSTRIAL HEADLINES RECORD HIGH LEASE RATES UNDERSCORE DEVELOPERS CONFIDENCE
DENVER INDUSTRIAL FUNDAMENTALS Lease rates keep climbing while vacancy hovers near all-time lows Source: Research, Q1 2016. 11 COLORADO DENVER METRO BOMA
INDUSTRIAL LEASING ACTIVITY 2015, BY SQ. FT. Motor Vehicles & Parts MFG Paper, Pulp, Packaging & Printing Materials MFG Metals MFG Life Sciences Energy Related MFG E-Commerce-Related Distribution Unknown Wholesale/Distribution Building Materials & Construction MFG Warehousing/Storage Food & Beverage MFG & Processing Other Transportation/Distribution/Logistics 2015 vs. 2014 Increase No Change Decrease N/A 0% 5% 10% 15% 20% 12 COLORADO DENVER METRO BOMA
INDUSTRIAL USERS IN THE DENVER MARKET BY SIZE 35 30 Users in the Market 25 20 15 10 5 0 >1 M 500,000-1 250,000-500,000 200,000-250,000 150,000-200,000 100,000-150,000 50,000 to 100,000 25,000 to 50,000 < 25,000 Note: Median requirement used if range was provided. User not included if only land acreage was specified. Source: Research, February 2016. 13 COLORADO DENVER METRO BOMA
DENVER RETAIL HEADLINES 2016 STARTS WITH LOWEST RETAIL VACANCY IN 18 YEARS
DENVER RETAIL FUNDAMENTALS Low vacancy in the market continues to steadily drive lease rates Source: Research, Q1 2016. 15 COLORADO DENVER METRO BOMA
RETAIL DEVELOPMENT Q1 2016 Deliveries & Under Construction by Submarket % of Total By Sq. Ft. 60 50 40 30 20 10 Source: Research, Q1 2016; CoStar, Q1 2016. 0 Southeast Central Denver Northwest West Aurora Colorado Bl/Cherry Ck Q1 2016 Delivered Q1 2016 Under Constuction Southwest Boulder Northeast South 16 COLORADO DENVER METRO BOMA
DENVER MULTIFAMILY HEADLINES RENT INFLATION SLOWS AS NEW PRODUCT COMES ONLINE
MULTIFAMILY SUPPLY DEMAND IMBALANCE NEW CONSTRUCTION STILL LAGS HOUSEHOLD CREATION Permits, Households 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 Apt. Vacancy (%) 10 9 8 7 6 5 4 3 2 1 0 Single Family Permits Multifamily Permits Apt. Vacancy (%) Annual Household Creation Source: Moody's Analytics, Econometric Advisors, Research April 2016. 18 COLORADO DENVER METRO BOMA
MULTIFAMILY PIPELINE TO SOFTEN MARKET FUNDAMENTALS MORE THAN 26,000 UNITS DELIVERED IN 5 YEARS 10.0 15% 8.0 forecast 10% Vacancy (%) 6.0 4.0 5% 0% -5% 2.0-10% 2009.1 2009.3 2010.1 2010.3 2011.1 2011.3 2012.1 2012.3 2013.1 2013.3 2014.1 2014.3 2015.1 2015.3 2016.1 2016.3 f 2017.1 f 2017.3 f Vacancy Rate (R ) Same-Store Rent Infation Y-o-Y (L) Source: EA, Q1 2016. 19 COLORADO DENVER METRO BOMA
WHAT IS THE OUTLOOK?
UNEMPLOYMENT VERY CORRELATED WITH U.S. REAL ESTATE Vacancy and unemployment (%) 20.0 18.0 Office Vacancy Industrial Vacancy Apartment Vacancy Unemployment 16.0 14.0 12.0 10.0 8.0 6.0 4.0 2.0 Source: Econometric Advisors and Macrobond, Research. 21 COLORADO DENVER METRO BOMA
DENVER UNEMPLOYMENT CORRELATES MOSTLY WITH OFFICE VACANCY Vacancy & Unemployment (%) 20 18 16 14 12 10 8 6 4 2 0 2005.1 2006.1 2007.1 2008.1 2009.1 2010.1 2011.1 2012.1 2013.1 2014.1 2015.1 2016.1 Office Vacancy Industrial Vacancy Apartment Vacancy Retail Availablility Unemployment Source: US Bureau of Labor Statistics, EA, Research. 22 COLORADO DENVER METRO BOMA
It all comes back to jobs
DENVER EMPLOYMENT GROWTH TRENDS BELOW NATURAL UNEMPLOYMENT STRAINS HIRING 3.2% (March, 2016) YEAR NET JOBS ADDED ANNUAL GROWTH RATE 2013 50,600 JOBS +3.6% 2014 54,400 JOBS +3.7% 2015 53,100 JOBS +3.5% 2016 YTD (Apr) 43,300 JOBS +2.8% 2017 ( EA forecast) 40,300 JOBS +2.3% 24 COLORADO DENVER METRO BOMA
DENVER METRO JOB GROWTH YEAR-OVER-YEAR JOB GROWTH IN MONTHS Sept-75 to Nov-82 Dec-82 to May-83 Jun-83 to Aug-85 Sept-85 to Aug-87 Sept-87 to Jun-01 Jun-01 to Feb-04 Mar-04 to Oct-08 Nov-08 to Jun-10 Jul-10 to Apr-16 93 months of job gains (7.8 yrs) 6 months of job losses (0.5 yrs) 27 months of job gains (2.3 yrs) 24 months of job losses (2.0 yrs) 166 months of job gains (13.8 yrs) 33 months of job losses (2.8 yrs) 56 months of job gains (4.7 yrs) 20 months of job losses (1.7 yrs) 70 months of of job gains and counting (5.8 yrs) Source: US Bureau of Labor Statistics. 25 COLORADO DENVER METRO BOMA
CHALLENGES AHEAD PERCEPTION OF O&G IMPACT Limited and contained; bullish commodity price forecasts UNDERSTANDING THE DENVER MARKET Resisting mean reversion with impressive job growth and talent in-migration NEW SUPPLY Softer rental rate growth but attractive big blocks WORKPLACE DENSIFICATION Not specific to Denver CYCLICAL INDUSTRY We know there is a cycle question is when and severity? Will the Fed or global influences accelerate timing of a downturn? 26 COLORADO DENVER METRO BOMA
THANK YOU JESSICA OSTERMICK, DIRECTOR RESEARCH & ANALYSIS JESSICA.OSTERMICK@.COM