Denver Leads Peer Cities In Office Development, But Its Tenant Base Remains Unclear

Denver has more office space in its development pipeline than its peer cities in the Western U.S., according to a study compiled by the Downtown Seattle Association, with roughly 2.3M SF of office construction underway across the metro area.

But who will lease Denver’s new office buildings once they are completed is an open question, as leasing activity in the Mile High City remains under pressure and historic tenant bases shift.

The city’s development pipeline is well ahead of other cities mentioned in the report, such as Portland, Seattle and Chicago. Portland had roughly 525K SF of office space under development as of fourth-quarter 2023, according to data from Colliers. Seattle and Chicago had 1.4M SF and 759K SF of offices under construction, respectively, the brokerage found. 

Roughly 700K SF of office space is under construction downtown, according to CBRE, the second-highest total out of the 16 submarkets CBRE tracks. All of the square footage is contained in a single development: 1900 Lawrence, which is just 4.4% pre-leased with about three months left until the building’s projected completion.

Meanwhile, Denver recorded net negative absorption of 80K SF in Q4 2023, CBRE found. In Q4, office tenants inked 1.1M SF of leases in Denver, roughly 6.7% below the activity recorded in Q4 2022, CBRE found. 

Denver leaders are trying to transform the central business district into a more mixed-use neighborhood, which could change the tenant mix of Denver’s downtown offices, according to Downtown Denver Partnership Vice President of Planning and Community Impact Andrew Iltis. That could mean including tenants like the corporate offices of retailers and restaurants as longtime downtown industries like energy and tech slow their leasing activity.

“I think what we're really putting our energy into right now is bringing those regional and local brands so that we can see people growing their business from the ground up, whether they've started here in Denver, or whether they've started somewhere else and are looking to try out a market” Iltis told Bisnow. 

In the years before the pandemic, technology companies have driven Denver’s office leasing activity. But that began to change in early 2020 as tech companies embraced remote work. In turn, the share of tech companies leasing office space in Denver declined from around 40% to 16%, CBRE Senior Vice President Ryan Link told Bisnow in December.

Iltis said Denver may not attract large companies like LinkedIn or Google right now, but the decrease in tech office leasing has “opened the doors” for smaller companies in business services, insurance and wellness to enter the market. For example, global consulting firm Bain and Co. leased 39K SF at 675 15th St. and Booyah Advertising leased 25K SF at 1700 Lincoln St., according to DDP’s 2023 State of Downtown Denver report. 

Digital ad company Choozle announced last week that it would move its headquarters to downtown Denver as well, choosing 1125 17th St. as its new home. The company did not disclose the size of its new office.

Apart from downtown, other popular office development spots are River North and Cherry Creek. River North has more than 787K SF under construction, with 92% of that captured in three projects, according to CBRE’s market report. One of the projects is T3 River North, a 230K SF office building at 3500 Blake St., which is already 100% pre-leased to Xcel Energy. 

Cherry Creek has more than 350K SF of office space under construction and is one of Denver’s most competitive submarkets for office space. Cherry Creek boasts a 7.5% direct vacancy rate, the second lowest in the metro area behind only Longmont, and an average asking rent of $37.37 per SF, $4.52 above average for the metro area. 

JLL Managing Director and office landlord broker Jamie Roupp told Bisnow he is targeting tenants that are “proactively trying to attract and retain talent, particularly those with stated return-to-office policies.” Some landlords are also offering enhanced tenant improvements like new flooring or HVAC systems to attract new tenants, Roupp added. 

But the flight to quality across the commercial real estate industry has “widened the performance gap” for many of downtown Denver’s office buildings, Roupp said, adding that newly constructed buildings that are well-located are “capturing a disproportionate share of tenant demand.” 

Bisnow previously reported that the market for Class-A office spaces is tightening in top-dollar markets like Miami, New York, and Chicago as tenants pursue space in the most modern buildings. In the short term, Roupp said these issues could buoy leasing activity at existing office spaces by delaying the delivery of new construction and controlling the pace of new supply hitting the market. 

Cushman & Wakefield’s data suggests that this activity is likely to persist given that Class-A office buildings contributed more than two-thirds of Denver’s office leasing activity in Q4, or roughly 867.9K SF of space in all. Class-B office space made up 28.5% of activity, accounting for about 365K SF. 

The flight to quality has also caused existing tenant requirements and new-to-market relocations to be either flat or declining, Roupp said. He noted that this trend could reverse as demand picks up in the market, but that remains to be seen.