Denver Office Blues Continue, But Subleases Are Slowly Disappearing
Denver’s office market kicked off 2025 on the same bumpy road it has traveled for five years now. The market saw more move-outs and rising vacancy — and big risk for building owners.
Total vacancy hit 26.8% in Q1, according to CBRE’s first-quarter Denver office report, up 70 basis points from the previous quarter. That’s a 170-basis-point increase from a year ago and adds to “financial pressures” increasing the likelihood of foreclosures and loan defaults, the report says.
Nearly a quarter of Denver’s CMBS loans are delinquent, Bisnow reported earlier this month, while 47% of all CMBS-backed buildings have a vacancy rate over 25%.
The entire metro had net negative absorption of 813K SF — a sharp fall from a nearly flat Q4.
Downtown stayed shaky with a 35.3% vacancy rate, while the suburbs sit at 23.6%, with the southeast submarket carrying a heavy load of negative absorption.
One potential silver lining is that sublease availability continues to shrink, falling 11.3% year-over-year to 5M SF. It is down 23.5% from its Q1 2023 peak.
CBRE analysts told Bisnow in an interview that the story behind the sublease cooldown is twofold: Good plug-and-play spaces have been leased up, and pandemic-era subleases are naturally expiring.
“We’ve seen less companies putting new space out there, and the good subleases that were on the market have been absorbed,” said Mitchell Bradley, a CBRE senior vice president specializing in southeast Denver’s office market. “Companies can move into Class-A spaces at a discount, and they don’t have to build out from scratch.”
In some cases, landlords have stepped in to rework deals, buying out old subleases and flipping spaces into direct deals, CBRE First Vice President Lindsay Gilbert said.
“The subleasing tenant gets relief, the landlord secures a new deal beyond an upcoming expiration, and the new tenant gets a clean, plug-and-play space without the baggage of a sublease contract,” Bradley said.
The metro isn’t out of the woods. CBRE expects more negative absorption throughout 2025, albeit slowing, as tenants continue to shrink their footprints but seek higher-quality spaces.
Southeast Denver, long a bright spot in the metro’s office sector, didn’t escape Q1’s struggles. It posted 270K SF of negative net absorption, pushing total vacancy to 26%, according to CBRE’s report focused on the submarket.
Leasing activity also slipped, down nearly 9% quarter-over-quarter, although average direct asking rents continued to edge up from $28.90 to $29.25 per SF, full-service gross.
Part of the drag came from big move-outs like Comcast exiting 137K SF at Inova Dry Creek and Merrick & Co. downsizing in Greenwood Village. But Gilbert and Bradley said the southeast market is still seeing decent traction, especially for move-in-ready speculative suites in the 10K SF to 15K SF range.
Spec suites are critical right now, they said, and spaces that tenants can step into quickly merit longer lease terms to justify what the landlord spends on tenant improvements.
The southeast market is also seeing a mini flight to quality — not just between Class-A and Class-B but also within the classes. Well-located, upgraded Class-B buildings with spec suites are hanging on better than tired assets without upgrades.
“There’s always been a flight to quality,” Gilbert said. “In the B properties, we’re seeing if you have a solid location, nice amenities and good spec suites, those are doing a lot better than those where the property owners haven’t put as much effort into improvements.”
All of these factors are merging to create more attainable rents for companies seeking office space, according to CBRE, even if the prices are creeping up on paper.
Gilbert said operating expenses have come down, sometimes by $1.50 or more per SF. So looking at terms on a gross basis could show flat growth or a decline.
“Optically, while rents actually have increased and, granted, not by a large number, that’s misleading,” Gilbert said.
