Signs Of Life Appear For Metro Denver's Office Market

On the heels of a pair of interest rate cuts and broader positive economic news, there are glimmers of light at the end of the tunnel for Denver's office market.  

Vacancy rates keep climbing, and leasing demand remains largely depressed. But there are signs of life, including a couple of high-profile leases and a ballot measure aimed at breathing new life into the central business district. 

CBRE’s third-quarter data shows a challenging landscape: The metro area recorded 777K SF of negative absorption, while vacancy rates now stand at 25%. Yet downtown Denver saw 149K SF of positive absorption in Q3, even as its overall vacancy rate sits at a stubborn 34%.

Amy Aldridge, partner at tenant representation specialist Tributary Real Estate, sees progress in the market, if incremental. 

“Office space that has been delivered over the past few years is finally getting leased, and with fewer new office buildings under construction, the supply is stabilizing,” Aldridge told Bisnow. “While vacancy rates remain high across Denver, especially downtown, we're seeing steady improvement and slow progress in the right direction.”

Aldridge said there’s a disconnect between public perception and the reality on the ground.

“We’re very busy, and we’re seeing a lot of office leasing interest,” she said. “And we've noticed the same trend among our competitors.”

But the data shows a fragile Denver market where large, single-lease events can significantly impact absorption numbers, making it highly sensitive to tenant movements. 

Three major moves in Q3 reveal how close the market is to the margins. In southwest Denver and Lakewood, the U.S. Department of Interior and the National Park Service vacated over 365K SF combined, tipping metro-wide net absorption into negative territory. 

According to JLL, had these tenants stayed, the metro’s overall absorption would have been positive.

Meanwhile, in the southeast Denver suburbs, defense contractors Lockheed Martin and Arrow Electronics exited nearly 300K SF, adding to the net loss. 

The shifts go both ways. Downtown was the only submarket to show positive absorption. This was largely due to Bet365, a UK-based online sports betting firm, moving its U.S. headquarters into Denver, leasing 119K SF at 1701 Platte St.

“The real story is when you dig into the submarkets,” Downtown Denver Partnership CEO Kourtny Garrett told Bisnow.

More than 1.4M SF of office space has been signed this year, according to data provided by the DDP, as organizations like Amazon, Stack Infrastructure and the U.S. Department of Homeland Security have either moved into the city or expanded their footprint. Seventy-nine percent of that activity has been new leases and 21% renewals.

“I think that it’s really a positive sign,” Garrett said. “It’s not the rate that Denver is used to or the rate of growth that’s going to carry us through … we need many tactics to get there.”

One of those tactics was just approved by voters through Denver ballot measure 6A. The measure allows the city to invest up to $570M through the Denver Downtown Development Authority to revitalize the central business district. The funding, primarily through tax increment financing, is intended to boost mixed-use development, improve public spaces and enhance connectivity across downtown.

“LoDo is still incredibly vulnerable, and that’s why initiatives like 6A are so important,” Garrett said.

While 6A offers a potential for future growth, it won’t immediately change current dynamics. 

Aldridge pointed out that despite small improvements in absorption and a few high-profile leases, the metro office market is far from a full recovery.

“We're still in a recovering market. Progress is happening, but it will take time,” Aldridge said. “To keep moving in the right direction, we need to stay the course with a focus on thoughtful, innovative and collaborative approaches, especially when it comes to reimagining vacant spaces downtown.”