Office Rents In Denver Keep Climbing Despite Availability Hovering At 30%

Denver’s office market is showing signs of recovery nearly five years after the pandemic sent it into a tailspin. The city and its businesses have recovered from shocks before, but this time around, the office market is not following the familiar pattern that emerged during recent recessions 

Availability has undoubtedly climbed as office users hesitate to commit, but rental rates remain elevated, taking the opposite trajectory of the last two recessions, according to a new report from Savills. In the aftermath of both the dot-com bubble and the Global Financial Crisis, rents tumbled.

“The prior two down cycles had a normal inverted curve, which shows availability is high and rents are down,” said Brendan Fisher, senior vice president and market leader for the Savills Denver office. “This is unique. We did not see this in the past two cycles where we had these two curves in parallel; they’ve kind of steadily gone up together. The real question is ‘Why? What’s different this time?’”

The overall absorption picture is one of stability. Quarterly leasing activity in the fourth quarter of 2024 held steady at 1.9M SF, bringing total 2024 leasing activity to 6.6M SF. That roughly aligns with the five-year quarterly average despite rising rates and widespread availability.

Metrowide rental rates, however, saw a 7.2% year-over-year increase, while availability rates saw new highs. Savills calculates availability versus vacancy to show all rentable space, including sublets.

The total availability rate grew by 150 basis points in that period, hitting 30.2%, while sublease availability saw a slight contraction, falling by 500K SF to 5.5M SF.

Submarkets with the highest availability rates, like Downtown Denver at 40.8%, also posted the highest asking rents, with downtown sitting at $45 per SF. The Lower Downtown and River North area combined availability rates of 34.5% with premium rents of $48 per SF. 

Demand for Class-A buildings is high as employers compete with the home office to lure workers back, keeping rents high on average, Fisher said. Meanwhile, many high-end office buildings that broke ground before the pandemic and high interest rates are just now opening their doors, increasing supply.

“From 2015 to 2020, [the Denver economy] was strong,” Fisher said. “They could build spec buildings. We’ve seen a lot of that delivered.”

Landlords are also loath to reduce asking rents unless they absolutely have to. They’d rather take alternate routes like offering concessions, Fisher said. Asking rents are built into a development’s total value, so reducing rents causes that value to decline, impacting investors and banks.

“If you start lowering your rental rates, you’re lowering your exit value,” Fisher said.

Concessions include free rent, or “rental abatement,” which includes abated parking and significant tenant improvement allowances.

Landlords are “getting creative,” Fisher said. They may, for example, offer a certain amount per square foot in tenant improvement allowances and allow the tenant to put any unused portion of that amount toward their lease, lowering their effective rent rate but keeping asking rents the same.

“We always say, ‘The rate is the sacred cow for owners and investors,’” Fisher said.

But a big twist may be coming. Investors currently snapping up distressed office properties at significant discounts will soon have units enter the market, likely adding significant downward pressure. The new owners of these buildings are upgrading amenities and beautifying their properties. How that will impact the sector remains to be seen.

Fisher called it a potential market “reset.”

Meanwhile, Savills is closely monitoring how the federal government’s mandated return-to-office policies under a new administration might influence private sector trends. 

“The big question is ‘Will that have a ripple effect in the private sector?’” Fisher said. “That is top of mind for all of us in our industry. Will that increase the utilization of office space, and if so, how rapid will our recovery be because of that?”