It wasn’t the meltdown seen when oil prices tanked in the mid 1980s, but Denver’s real estate market sure felt it when the price of crude fell by half in the latter part of 2015.
The amount of downtown office space available for sublease or given back to landlords by oil and gas firms hit 1.2 million square feet in September 2016, more than double the amount of sublease space available in May 2015, according to a new market report. A barrel of West Texas Intermediate crude was going for more than $60 in spring of 2015, before bottoming out around $26 in the winter of 2016, leading to job cuts and industry-shaking moves such as Encana selling its holdings in the Denver-Julesberg Basin.
“We saw a lot of contraction back to Houston,” said Sam DePizzol, a Denver-based executive managing director with real estate services firm Newmark Knight Frank, the company that produced the research.
It was a rough stretch for companies and the landlords who rent to them, particularly those in central- and upper-downtown portions of Denver that have long catered to oil and gas tenants. But, just as the price of oil has rebounded (closing at $62 a barrel Friday), Newmark Knight Frank’s report shows that since that 2016 vacancy peak, the office market has begun to stabilize and bounce back, too. And it hasn’t just been energy companies driving the revival this time, observers say.
In January, the amount of vacated oil and gas office space that had been absorbed by new tenants exceeded the amount of such space available in downtown Denver for the first time since researchers began tracking the sublease market in May 2015. More than 780,000 square feet has been soaked up, and just under 687,000 remains available, the report shows.
Oil and gas tenants also shed less space last year — 190,000 square feet — than in 2016 (367,500) or 2015 (570,000). The trend line for space being backfilled has steadily climbed since September 2016, taking off in the early part of 2017.
“There still could be some additional softness (in the market) but the trend line of sublease space has been extraordinarily positive,” DePizzol said.
The report doesn’t break down which companies are taking on all the shed space but, anecdotally, DePizzol said it’s a diverse group and not just resurgent energy companies.
Attracted largely by ample space to grow into, many tech firms are now setting down roots in office buildings southeast of Larimer Street, DePizzol said. Many landlords have spruced up their older office stock and are offering generous improvement packages to get tenants to move in, he said. It doesn’t hurt that rents in the Skyline and Uptown neighborhoods are cheaper than in LoDo.
He listed marketing tech firm Marketo’s recent move into space in the Denver City Center building, 707 17th St., and email delivery company SendGrid’s relocation of its headquarters from Boulder to 1801 California St. in late 2016 as examples.
SendGrid occupies 72,000 square feet in 1801 California, housing more than 300 employees, company spokesman David Friedman said. SendGrid’s lease runs into 2024, he said.