Downtown Denver Faces Mounting Challenges On Road To Recovery

As downtown Denver labors to recover from the pandemic’s effects amid economic turmoil that has driven some of the area’s biggest and best-known office towers into financial straits, panelists at a recent Bisnow event looked for bright spots in the city’s real estate landscape.

“Through difficulties, we find opportunities and challenges,” Chris Payne, a vice president at Riverside Investment & Development, said during Bisnow’s Future of Downtown Denver event, held April 13 at the Curtis Hotel. 

Finding ways to increase Denver’s office occupancy has proven to be one of the most challenging aspects of the city’s recovery given the popularity of remote and hybrid work options, Payne said. 

Denver’s office market is facing a 10-year high of office vacancies, according to CBRE, with a 20.9% vacancy rate in Q1 2023. The downtown vacancy rate is higher than the metro average at 28.3%.

However, one bright spot is that submarkets like Cherry Creek have been able to attract office tenants. To Bob Pertierra, senior vice president of economic development at the Downtown Denver Partnership, Cherry Creek’s successes should be a sign that office markets need to serve more than one purpose if they are going to thrive in the future. 

“We need Denver’s central business district to become more of a 24-hour city,” Pertierra said. “This city needs people to go to work, and then happy hour, maybe check out a ballgame and go to a restaurant. That’s the Denver of the future.”

There are some projects that suggest downtown Denver is moving in that direction. Take, for example, 1900 Lawrence, a 720K SF mixed-use project being built near Coors Field. Payne, one of the developers on the project, said his team expects to lease the floor level with retail and other entertainment options, including a golf simulator and a state-of-the-art gym. The project is expected to be delivered in the second quarter of 2024.

Steel House in River North is another example of an office development that seeks to mix business with recreation. The 300K SF office development also includes a rock climbing wall and a 13K SF landscaped outdoor space.

Projects like 1900 Lawrence and Steel House are also examples of how Denver can leverage its “natural amenities” like quality of life and proximity to the Rocky Mountains to continue to attract people to the city, according to Jose Carredano, a managing partner at Fox Park. However, Carredano noted that Denver’s affordability issues could upend those efforts if they’re not addressed. 

“These are big challenges for the state, city, local developers and everyone around that structure to make Denver a place where people want to stay,” Carredano said.

Denver’s relative unaffordability continues to be one of the most pressing challenges the city faces, panelists said. In March, the median home price in the seven-county metro area fell by more than 5% year-over-year to around $599K for a single-family home, according to the Colorado Association of Realtors. However, that median price is still up more than 43% from March 2019, the data shows.

At the same time, the CAR’s affordability index for the metro area — which measures the buying power of Denver’s median salary — stood at just 48 points. That means that a worker earning a median salary needs to supplement their income by approximately 52% to afford a median-priced home. 

These affordability challenges are also threatening the long-term viability of some of Denver’s most popular areas like River North, Deputy Mayor Laura Aldrete said at the event. She added that the relatively low number of people who own property in River North could cause the area to turn into a single-use neighborhood for multifamily housing instead of the thriving entertainment district that Denver has envisioned. 

Going forward, real estate developers say adaptive reuse projects could help Denver become the city that it wants to be. Some examples of successful adaptive reuse projects include ReelWorks in River North, a former metal manufacturing plant that was repurposed into an event space. 

But some developers like Max Muller, a vice president at Wood Partners, say that getting these projects off the ground has proven to be challenging because of Denver’s regulatory environment and its backlog of permit and entitlement applications. To Muller, these struggles show that Denver’s real estate community needs to be more active in helping shape policies that work for developers. 

Muller added that he is concerned these issues could continue if Denver elects political leaders that do not support real estate businesses. He described the city’s mayoral race as a “mixed bag” for real estate developers, but the city council races are more troublesome. 

“We don’t need political leaders that will be lackeys for us,” Muller said. “But we do need people who are willing to work with us and engage in tough conversations to solve the problems our city is facing.”