With expected absorption of more than 1M SF of office space annually through 2021, downtown Denver is likely to have a shortage of large blocks of Class-A space, according to a report by Newmark Knight Frank.

That shortage is pushing tenants to large blocks that are available in Uptown and Skyline, areas that once were a concern to owners and developers where historically vacancies have been higher than in the central business district.

Newmark Knight Frank Executive Managing Director Sam DePizzol said the news is significant for two reasons. First, office inventory downtown has increased by 13% over the past four years, all of which has been absorbed despite record-high rental rates. Second, the potential lack of large blocks of space means companies considering relocating or expanding in Denver must act quickly to secure space.

“The last time downtown Denver saw a four-year run of robust absorption totaling approximately 1M SF per year was in the early 1980s — when the Denver skyline was essentially delivered,” DePizzol said. “Much of Denver’s recent success centers on its appeal to corporate users, and absorption in downtown Denver has been driven by multiple new tenants in diverse industries, as well as organic expansion.”

The average annual absorption in downtown Denver from 1980 to 2017 was 322,055 SF, according to NKF Research data. The last time full-year absorption in downtown Denver totaled 1M SF was in 2006, which was a year of rapid expansion following recovery from the 2001 downtown in which absorption outpaced supply by a factor of two-to-one.

There were nine contiguous blocks of space 75K SF or larger available in downtown Denver in January, a number that soon will be down to five because of deals that are in the works, NFC Executive Managing Director Tom Lee said.

“Scalability is a big issue and costs a premium in today’s market,” Lee said. “For example, WeWork is seeking to capture full-floor-plus tenants or tenants requiring future scalability in its facilities at Tabor Center and Wells Fargo Center at a premium rate. Lack of options forces potential tenants to look in expanding market areas.”