Nearly 60% of Denver’s office vacancies are concentrated in about 10% of the city’s buildings, according to data from JLL.
The data shows about a quarter of that 60% vacancy is in just 1% of Denver’s buildings.
Among the 10% are the usual suspects: buildings constructed between 1970 and 1990 that have borne the brunt of the pandemic’s impact, such as Republic Plaza or Independence Plaza in Denver’s Central Business District. More than 40% of buildings have no vacancy at all, the data shows.
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The data also calls into question the notion that hybrid or remote work has irreconcilably changed the office forever, JLL Vice President Janessa Biller told Bisnow. Instead, it suggests that one way to recover Denver’s office market is to locate offices in parts of town that are better suited to attract employees, she said.
“People want more walkable cities,” Biller said. “They want places where people can gather, work, collaborate or maybe just get a couple of drinks.”
So far this year, JLL data shows that Denver’s office market has struggled to retain tenants. In the first quarter, move-outs exceeded move-ins, with big-name companies like Vail Resorts leaving its 75K SF at 390 Interlocken Crescent, according to JLL’s office market report. Meanwhile, subleasing activity remains high, posting a 13% climb year-over-year with companies like Comcast adding 136K SF to the market, according to the report.
Despite this activity, the report also says that “geography more so than ever is determining which buildings stand to be the winners and losers of the post-pandemic office market,” as certain submarkets continue to outperform the traditional office hubs like Denver’s Central Business District. In Q1, the Central Business District periphery market recorded about 1,500 SF of positive net absorption, well outpacing the net 14K SF tenants gave back in the district itself, according to JLL data.
Geography also links a lot of the offices with the highest vacancy rates, Biller said. Block 162, a 601K SF office building at 675 15th St. in downtown, has a vacancy rate of about 45% and is located in the Central Business District. A similar story can be told about Republic Plaza, a 1.28M SF office building that has a 38% vacancy rate, according to JLL.
Other offices that are closer to the edge of downtown like 1801 California seem to be faring much better than more centrally located offices for a couple of reasons, Biller said. On one hand, people feel safer traveling to the edge of downtown because it seems safer than the downtown core or near Union Station. On the other hand, businesses are downsizing their offices, and executives are changing their decision-making process around finding office buildings, Biller said.
“It used to be that a CFO would sit in a room and say, 'How much per square foot am I paying, and how much are my operating costs?'” Biller said. “But now, people are craving buzz. They want good food, clean spaces and nice offices too.”
Some office buildings are already getting behind the new trend, Biller said. Republic Plaza announced that it will open a Done Deal wine bar in its lobby. And 1125 17th St., a 492K SF Class-A office tower in downtown, will be the home of the new HashTAG from restaurateur Troy Guard, who also owns Guard and Grace on the ground floor of the 1801 California office building.
Another thing that office tenants are looking for is amenities that can help support an employee's overall well-being, like fitness centers, childcare facilities or healthy food options, Biller said. In addition, landlords are looking for spaces that incorporate modern design trends like using natural light.
There are still a few headwinds that Denver’s office market needs to weather on the road to recovery, Biller said. Rising interest rates have put a damper on owners’ ability to service debt and have caused a lot of volatility in the capital markets overall. Meanwhile, the banking sector is still recovering from the collapse of Silicon Valley Bank and Signature Bank in March, and the tech sector is trying to cope with waves of layoffs.
These issues could make it attractive for some of the properties with the highest vacancy rates in Denver to consider repurposing them into residential or other use types, Biller said without mentioning any specific buildings.
CORRECTION, JULY 7, 5:36P.M. ET: A previous version of this story incorrectly stated the vacancy rate at Block 162.
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