Denver's Office Distress Moves To The Suburbs In Q1

Denver’s office market took another round of hits in the first quarter, this time in the southeast suburban market where major users, including Arrow Electronics and Starz, vacated office space.

“Return-to-office mandates failed to keep office demand from softening further still during Q1 due to outsized exposure to a tech sector that has reduced its footprint over the last six months, coupled with headwinds from a 2023 that saw white collar payrolls shrink in each of its final four months,” a new report from JLL states.

Net negative absorption in metro Denver reached more than 662K SF in the first quarter, according to new data from JLL. The market’s total vacancy rate increased to 24.1%, a number that JLL expects to keep growing through the rest of the year.

Downtown’s vacancy rate is still well above the overall market average at 31.8%, while the southeast suburban market, which includes the Denver Tech Center, is roughly on par with the market at 24.4%. Both the central business district and the suburbs’ Q1 vacancy were well above their long-term averages.

All of this has translated into a dip in effective rents to $38.42 per SF for a full-service lease from $38.83 per SF in Q1 2022. Concessions are rising, with owners offering an average of just over 0.6 months of free rent per year of the lease term. 

Despite the slowdown, the market’s office development pipeline still contains 1.7M SF. Nearly half of that comes from one project, 1900 Lawrence, a 720K SF downtown office that is expected to deliver this year.

Across the market, 30.5% of the under-construction office space is pre-leased, according to JLL.