2008 Market Forecast
CBD Office: All the Right Stuff
COLORADO REAL ESTATE JOURNAL

By BILL TRESHAM
Published February 20, 2008

Businesspeople who visit downtown Denver are rightfully impressed by the growth of this great city – which has made a great name for itself nationally based on the very positive developments that have taken place during the past 10-plus years.

During this period of time, Denver quietly has made its way up the ranks in many of the areas that national real estate investors, like Callahan Capital Partners, tend to look at. The underlying economy is dynamic and increasingly diversified with a concentration of many growth industries. The downtown core has been revitalized with billions of dollars of investment in sports arenas, residential development, a new convention center, as well as upscale hotels, cultural venues and restaurants. In addition, we were attracted by Denver’s focus on investing heavily on important infrastructure projects, including an efficient public transportation network, which is critical to the continued growth of urban centers.

The strong leadership of the mayor and other civic leaders, as well as the impressive Downtown Denver Partnership, gives us comfort that downtown Denver will continue to thrive as an area where people will choose to live, work and play.

These were all very important considerations for Callahan Capital Partners while we were evaluating our acquisition of five Class A office buildings totaling 2.8 million square feet early last year. When you invest more than three-quarters of a billion dollars, you really want to make sure you are putting it in the right place, and now that we are almost a year into our downtown Denver investments, I am happy to say that, on many levels, things have performed even better than originally anticipated.

The other compelling aspect of our acquisition was the opportunity to develop Two Tabor. Demand for quality office space that matches the first-class venues, residences, and amenities that now define downtown Denver has been steadily building. Businesses that are growing in – or relocating to – Denver, based on the strength of the oil and gas and other strong industries, are seeking 21st century office buildings that match the forward-thinking, modern appeal of the city. Unfortunately, finding suitable space has become increasingly difficult. The options for Class A space have greatly diminished with vacancies going from 10.8 percent from just one year ago to 5.4 percent at the end of 2007.

The availability of Class AA space is even more scarce for firms looking to locate in, or expand their business in, first-class buildings with state-of-the-art systems, amenities and security. There has been a recent and growing demand for a new generation of office space, and that need will begin to be addressed in the CBD as construction soon will begin on the Class AA Two Tabor, with a targeted 2010 delivery date. When complete, Two Tabor will total 837,000 sf and find its place on the city’s skyline, 43 stories above its premier location, bounded by 17th Street, the 16th Street Mall and LoDo.

While there are understandable concerns about the national marketplace and a possible recession, real estate investors remain very bullish about downtown Denver and have a great deal to be optimistic about. They point to the strong absorption and vacancy trends, as well as the continued strength of the city’s industry base. The record volume of transactions over the past several years is just another example of Denver getting noticed as a desirable investment market, and we are very pleased with our decision to acquire such a high-quality portfolio of office properties in this dynamic market.