CRE Experts Predict Cautious Growth For 2025

It will take at least another year before the corrective forces at work show real results in Denver commercial real estate, according to panelists at Bisnow’s Denver State of the Market event on Oct. 16. 

Despite the panel’s title — Thrive in '25: Navigating the Future of Denver's Commercial Landscape — speakers mostly looked at 2026 and 2027 as the years Denver’s market will begin to thrive again.

“At least there are some conversations happening now, which weren’t before,” Menalto Development CEO Bernard Hurley said. “It seems like the attitude of the market is starting to at least realize we've hit the bottom, and we're starting to crawl out of the hole. … Hopefully, it's the beginning of the market coming back — not immediately, but maybe after the elections or early next year."

One of the biggest hurdles for developers remains the financing environment. While interest rates remain elevated from their previous historic lows, the panelists expressed cautious optimism that conditions are improving since the U.S. Federal Reserve cut interest rates by half a percentage point last month. 

RSM US Real Estate analyst Lauren Gerdes noted that while interest rates will likely remain higher than the industry had gotten used to, the path forward is now much more clear, especially since the Fed has signaled it will drop interest rates another 50 bps through the rest of this year.

“I think buyers and sellers will be able to get a little bit closer on pricing and we’ll hopefully start to see some of the deal volume pick up,” Gerdes said on the panel, which was held at Asterisk in Five Points and moderated by CohnReznick’s William Delsa Jr.

For now, though, lenders are remaining cautious and loan-to-value ratios are still dropping. Gerdes said the rise of private credit such as debt funds taking positions in developments is negatively impacting internal rates of return as well as loans to value. She said 50% LTV is becoming more standard, pushing borrowers to layer in less appealing gap and mezzanine funding to make up the difference.

“Unfortunately, I think for the next few years that’s still going to have a role,” she said.

There are already some brights spots emerging across Denver. 

Retail, which has been an underperforming sector in recent years, could surprise the market, Gerdes said. With a limited amount of new construction in the pipeline, she said retail demand could outpace supply, driving development opportunities. 

“Something I haven't really said in a long time is that retail could be really exciting,” Gerdes said. “There's only about 300K SF of new construction in the pipeline. And when you look at the demand side, there's only about 4.7% availability in current inventory. Even if consumer spending slows in 2025, there will still be tremendous demand with such limited supply.”

The continued turbulence in the office market is opening the door for innovative conversions of office space into subsidized residential units, which could serve the double benefit of taking vacant space off the market and adding needed housing.

“We’re probably at the bottom of the cycle, so starting a new cycle,” said Iván Anaya, Columbia Ventures’ president of the Mountain West. “And so once we're in the middle of the cycle we will probably start to execute those market-rate parcels, but at the moment, it's all about community impact and service-enriched housing at the affordable level.”

And that is leading to intense competition among developers going after historic and low-income housing tax credits. 

“I think we're starting to see somewhere between $3 and $4 of requests to every dollar that's available for funding,” Anaya said.

“Affordable housing is becoming more and more competitive every year,” he added.

Multifamily developers are increasingly focusing on community impact, walkability and sustainable development, panelists said. Public-private partnerships were highlighted as a growing trend, particularly for large-scale, multiphase developments.

“We're talking a lot more about walkability,” Anaya said. “It's not just about the 20% to 25% returns that were the focus for the last five or six years. We're back to the fundamentals: creating spaces people want to live in, with community impact and service-enriched housing at the affordable level.”

Many developers, including Quarterra Group, are more heavily looking a step above affordable housing, building units that serve middle-class Americans who can't afford Class-A units.

“We’ve simplified our product line and are focusing on Type 5 [wood-framed], three-story suburban buildings — what we call attainable housing,” Quarterra Group City President Chris Gillies said. “Some people refer to it as affordable housing, but affordable housing has a more technical definition. For us, it’s an attainable product aimed at … the missing middle.”

The “missing middle” is a somewhat nebulous term increasingly used in CRE to describe people who make a certain percentage of an area’s median income that is often not enough to live on comfortably in that particular metro but still too much to qualify for federal or state assistance. Some developers define it as between 50% and 100% of AMI, a group Gillies said has been priced out of both renting and buying in the Denver metro.

Making projects work financially for this segment can require creativity on the part of developers. Panelists mentioned artificial intelligence tools and 3D printing as methods that could help streamline processes and reduce costs in coming years. While 3D printing remains limited to smaller, four-story buildings, its potential to reshape development in lower-density areas could be a future growth area, Gelles said.

One area ripe for growth is downtown Denver, particularly the upper downtown area, where the city’s Downtown Area Plan and Measure 6A are expected to revitalize underused spaces.

“A focus on the walkability of bringing people back to that area and rooftops and bringing actual residential units to that part of downtown is exciting,” Anaya said. 

He also pointed to a more sobering but potentially lucrative future opportunity: distressed commercial properties.

“One thing I’m really looking forward to — maybe not so good for some, but definitely good for those who have access to capital — is that there’s a wave of debt coming due. There will be assets on the market that can be repositioned for the greater good, but at the end of the day, I do look forward to looking at some of those assets in the next couple of years.”

Denver’s commercial real estate market may not require sunglasses just yet, but the panelists insisted the famous Colorado sunshine is just around the corner. 

“Denver definitely has gone through tough times before and always bounced back,” Gillies said. “Our business right now with the multifamily market is in a recession ... But that's not entirely a bad thing. It can be a healthy thing. It allows the city to catch up to itself and maintain the healthiness that we've enjoyed really for the last several years.”