Denver Office Market Showing Improvement Two Years After Pandemic
Metro Denver’s office market notched a victory in its post-pandemic recovery in the first quarter, with 232K SF of positive net direct absorption — the first time office users have taken more space than they vacated in a quarter since the onset of the pandemic.
That’s according to the latest data from CBRE’s Denver office, which reflects stabilization and improvement in the office market two years after the pandemic changed the way tenants think about the property type on a daily basis.
“Holistically speaking, the market is in a pretty healthy place, all things considered," said Ryan Link, senior vice president at CBRE. “It would be naive to say that things haven’t changed, but we’re certainly going in the right direction.”
The vacancy rate in the area is still elevated at 19.3%, according to the report, but ticked down from the end of 2021 after shooting up sharply after 2020.
The suburbs are recovering more quickly than downtown, Link said. The data support that statement, with a 17.8% vacancy rate in the southeast market, which contains the Denver Tech Center, the largest office market by inventory in metro Denver. By comparison, downtown is still dealing with a 24.7% vacancy rate.
Downtown also has the most space on the sublease market, with 1.5M SF available in the first quarter.
Sublease space began climbing two years ago as companies pivoted on plans to open or expand offices while remote work became the norm. These spaces are often available for a discounted rate compared to direct space, and some companies are attracted to them because they’re easy to move into.
Lots of tenants today are looking for plug-and-play spaces that don’t come with the need for tenant improvements and the associated capital expenditures, Link said. Subleases are popular among that crowd.
But others, in search of an office space that reflects company culture and values with the goal of both attracting workers back to the office and aiding in talent acquisition, want a space that’s all their own from top to bottom, he said.
That’s where the city’s pipeline of new space comes in.
Block 162, downtown’s newest large office tower, was delivered a year ago and has experienced some leasing velocity, but with 660K SF in total, has plenty of space to fill. A joint venture that includes Rockefeller Group in February broke ground on Paradigm River North, a 200K SF mixed-use development that will include office space, and in Cherry Creek, local developer Matt Joblon intends to kick off an office boom in the neighborhood with a 100K SF project he began earlier this month.
And, in a display of confidence, that office demand in downtown Denver will return in force within two or three years. Riverside Investment & Development Co. will on Thursday break ground on the largest office tower in metro Denver in 40 years, according to a media alert from the company. The 30-story, 700K SF project, dubbed 1900 Lawrence, has been on the radar in Denver for months but will begin construction this week, marking the beginning of an expected $400M investment.
Despite the current vacancy rate downtown, Link said, the building will be needed by the time it delivers, driven in part by a flight to quality in the Denver market that has led to high demand for brand-new or recently renovated spaces with a focus on tenant experience and health and wellness.