Denver's Office Market Shows Signs Of Recovery As Absorption Turns Positive

Denver’s office market clocked positive net absorption in the second quarter, only the second time that has happened since the pandemic began. 

Led by a surge of leasing activity in the suburbs, office users took a net 261K SF in Q2, according to new data from CBRE. It’s the latest indicator of a glimmer of recovery for office leasing in Denver.

Demand for office space in Denver this year is much stronger when compared to the prior three years, said CBRE Senior Vice President Anthony Albanese, who specializes in tenant representation.

Vacancies remained elevated relative to the prepandemic era at 23.9%, but a closer look at the city’s properties broken up by asset quality shows that older buildings continue to prop up those rates.

Class-A downtown properties carried a vacancy rate of 23.2% in the second quarter, while Class-B and C downtown properties sit at 37.8% and 38.5%, respectively.

“The reality is the overall vacancy rates are heavily skewed by certain buildings that are functionally obsolete or have been under invested in,” Albanese told Bisnow via email. “This roughly 35% of the product carries very high vacancy rates. Conversely, there is strong reason for investor optimism in quality well located office product.” 

Second-quarter vacancies reflected a 2.3% year-over-year increase, boosted by the delivery of the largest office building to go up downtown since the pandemic. 1900 Lawrence, a 704K SF tower, delivered in Q2.

The report says the building delivered fully vacant, “with its only pre-committed tenant, law firm Gibson Dunn & Crutcher, not occupying their single floor until early 2025.”

Average direct asking rents for metro Denver increased 5.3% year-over-year to $33.82 per SF on a full-service basis. The CBRE report says that “‘flight-to-quality’ has further driven demand for prime office buildings, allowing landlords to command higher rents.”

Suburban offices outperformed their downtown counterparts in Q2 absorption, with 334K SF leased on a net basis in the suburbs. Downtown absorption was a net negative 74K SF. 

The city’s tech tenants are slowly coming back to the market, Albanese said. 

The tech sector was quick to vacate office space when the pandemic began, as many of those companies were already using remote work for some job functions, he said. Since then, the industry has been slow to return.

“In large part, they were also very slow to acknowledge the challenges of a fully remote workforce and/or were restrained on return to office plans due to an extremely tight labor market,” he said. “The significantly elevated level of tech activity we have seen in 2024 is primarily pent-up demand as the industry re-engages in office.”

He also pointed to stronger demand from government agencies at the city and state level.

“These groups were also slow to return to the office but have strong momentum moving forward,” Albanese said.

Among office-using employers in metro Denver, only government entities grew their job numbers meaningfully in the second quarter, CBRE reported, citing Bureau of Labor Statistics data. The government sector accounted for a 5.2% increase in office-using employment. The area’s overall unemployment rate was 3.9% in May.