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James Real Estate - RE Mkt Cond Dnvr 2000 4th Qtr (Page 15)

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James Real Estate - RE Mkt Cond Dnvr 2000 4th Qtr
the atrium, common space, and indoor fountains into stores) to the 110,000 SF center. Desired new
tenants include entertainment/restaurant tenants as well as other traditional retailers. At present, the
property is approximately 30% vacant. The facelift is projected for completion later in 2000.
Although current activity in the CBD points toward steady and strong retail development, the
major hurdles confronting developers are the high cost of renovating older structures and the
inconvenience of parking typical of an urban downtown area. While these challenges exist, downtown
Denver has the strength of its size. Denver has the 22nd largest downtown in the United States while its
population is the 10th largest, a result, in part, of the redevelopment of a number of historical buildings
into residential lofts.
With further steady growth and lender confidence in the Colorado economy, stability will likely
be maintained as pre-leased and built-to-suit projects are constructed to meet the needs of expanding
suburban communities and older or poorly conceived projects are demolished and reproduced or
converted to other uses.
There is currently more anxiety about overbuilding in the retail market than for any other
commercial product type. Critics of Denver's retail market express concern about the over-retailing that
has resulted in a high of 30 SF per person retail ratio. The national average is 20-25 SF per person.
Despite concerns expressed within the marketplace about the future health of the retail industry in
Denver, most market experts are cautiously optimistic about the long-term viability of Denver's retail
market. In addition, the International Council of Shopping Centers believes, given the complexity of the
retail landscape, the 20-25 SF per person may be an oversimplification and the relevant standard might
be realistically closer to 50 SF per person in many cities.
At present, many owners of lower quality space are benefiting from tenants shopping around for
the best rate. This trend is consistent with a strong market and should help prevent higher end rates
from escalating so fast as to cause the market to overheat.

Denver's office market decline during the 1980s was the single most visible symptom of that
decade's economic woes. Combined with severe overbuilding, the energy industry contraction
devastated the metro office market.
Things are much changed and, at present, available capital and a strong market are again fueling
speculative office development in the Denver metro area. Rents in the best suburban markets have
reached replacement costs allowing large tenants to pursue build-to-suit properties at roughly the same
rate as leasing an existing building. However, the potential for rental rate increases in many markets is
expected to more closely match inflation, particularly where supply is beginning to catch up with
Denver's office market won't likely experience the downturn experienced in the mid-1980s, as
Denver's economy has diversified significantly and is no longer reliant on one particular industry.
Today's developers now build efficient buildings laden with high technology and are significantly
preleased before completion.
Office vacancy and absorption data, as compiled by the Frederick Ross Company, and with
trends generally confirmed with reports prepared by Fuller & Company, Grubb & Ellis, and CB
Commercial, are summarized below:
Number of
Year End
Total Office
Net Space
Year End
Vacant Space
Net Market

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