Daily Camera:

December 2005: A look back at 2005 and ahead to 2006

Where will our local office commercial real estate market head in 2006? What will vacancy rates look like and where will lease rates go? Answers to those questions are in anyone’s crystal ball, but let’s first take a quick look at the year 2005 in review.

Office vacancy (all classes) in the Northwest Submarket (including Boulder, Louisville, Lafayette, Broomfield and Longmont) began the year with a total vacancy rate at approximately 20%. We have seen good activity and several leases signed in this market. There has been approximately 1.6 million square feet of office space leased in this area with 1.06 million square feet of net absorption (the net change in occupied space over a given period of time including direct and sublease space). The result of the leasing activity is that vacancy rates should finish the year approximately 5% lower from where they started.

Total Office Vacancy Rate January 1, 2005 = 20%
Total Office Vacancy Rate as of December 15, 2005 = 15 %

As expected, lease rates in the office market are firming up as vacancy rates decline. The graphs below provide a snapshot over the last 5 years of vacancy rates and average gross lease rates for the northwest office market (all classes included):

*Data and graphs provided by CoStar Realty Information, Inc. Vacancy rates, rental rates, available square feet and the graphs were compiled by utilizing the Costar Realty Information, Inc. database. The information contained herein is for informational purposes only. Gibbons-White, Inc. or Chris Boston makes no representations or warranties with respect to the accuracy of the data or the information contained herein.

What’s in store for 2006?

So what does all this mean for the outlook in 2006? If vacancy rates continue to fall, we should see the rental rates continue to stabilize and potentially be on the rise. There are currently approximately 2.7 million square feet of office space available for lease in the Northwest submarket. Based on the absorption rates in 2005, this number should decline dramatically over the next year or two.

If you are a tenant, the timing could be right for you to renew your lease in your current space or look to upgrade your space (there are a lot of nice spaces available out there!). It is worth some thought to consider locking in at the currently attractive lease rates for an extended period of time depending on your business needs. Based on the amount of space out there you could take advantage of finding the right space for your company at a great rate. If you are a Landlord it appears that the forecast looks good with sunnier skies just ahead.