Oil and Gas Spurs Downtown Real Estate Boom

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Photo: View from the 47th floor of 1801 California St. in downtown Denver. [CPR/BMarkus]

Commercial real estate in downtown Denver is taking off, and the booming oil and gas industry is driving it. Drillers striking pay-dirt in Weld County and beyond are quickly gobbling up the best high rise office spaces, like 1801 California, formerly the Quest building, which boasts one of the best views in all of Colorado. When Nick Palakovich, a vice president of the real estate firm Cushman and Wakefield, brings clients here, he says they’re mesmerized as soon as they get off the elevator.

“They walk towards the window right away,” Palakovich said, standing in a 47th floor office overlooking the Front Range. “The best part about showing office spaces, when you have views, is that they almost forget where they are, and they just start to walk towards the mountains and really look at the views.”

Palakovich just leased the floor above to an oil and gas company from Calgary. Altogether, the energy industry has closed deals on more than 866,456 square feet of new space in downtown Denver since 2010, according to the commercial real estate firm CBRE. That’s been a luxury for the city, as the country comes out of the worst downturn since the Great Depression.

“Oh, no question,” Palakovich said. “It’s kind of what kept us out of the downturn that a lot of other cities had. It offered us ... that one industry that kept us afloat, and it was a growing industry.”

It’s still growing. New technology has opened enormous oil and gas reserves in Colorado. One of the companies taking advantage of that is Houston-based Anadarko Petroleum. The company has added 20,000 square feet of space in downtown Denver - nice spaces like Brad Holly’s highrise corner office.

“I like the ability to look west and see the mountains,” Holly said.

He holds the prestigious position of vice president of operations for Anadarko, but his office is not unique. Geologists and engineers also have nice spaces.

“If you’re trying to figure out a new technique to … produce oil and gas, you don’t need to be listening to your neighbors talk about their kids or their wife over the cubicle wall,” Holly said. “It’s nice to have that space to think and to generate ideas and ultimately make money for the company.”

Those big offices are also a powerful tool to attract and keep talent in the ultra-competitive energy industry.

The expansion is driving up prices. Lease rates have climbed 12% in the last year, according to real estate research firm CoStar. If this rate of growth continues, there could be a space crunch. There aren’t a lot of offices under construction.

“New construction in the Denver office market is confined to lower downtown,” said Sam DePizzol, with CBRE, “and those are much smaller buildings. Those are 350,000-square-foot buildings. To give you an idea, 1801 California is 1.2 million-square-feet.”

For some, talk of new construction brings back ghosts of the past, when vacancy rates skyrocketed as the price of oil tanked.

“You had many companies that said, ‘Denver’s a great place,' come in,” said Sherman Miller, executive director of the Real Estate Center at CU-Boulder, “so it caused this spur of development. And what happened was, when the price of oil went down to $20 a barrel, these companies said, ‘Come back to Houston, come back to Calgary,’ [and] closed their operations.”

Miller says they called the empty high rises see-through buildings.

Back then, however, energy was pretty much the only game in town. It took up more than half the downtown space. DePizzol, with CBRE, says now, technology, medical, and financial companies all want a flag in Denver.

“Energy’s a major player, but it’s not the dominant, dominant player,” he said, “so I feel we’re much more diversified than we were in the early ‘80s.”

Denver, DePizzol says, is not a one horse town anymore.

[Photo: CPR/BMarkus]