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Denver office space vacancies continue to increase, commercial real estate report shows

Downtown Denver
Posted at 5:46 PM, Jul 25, 2022
and last updated 2022-07-26 10:13:40-04

DENVER — As business continues to bounce back following the impacts of the coronavirus pandemic, the Denver commercial real estate market is still working its way through the struggle.

A JLL quarter two analysis of Denver's current economic and office real estate market conditions shows that absorption of office spaces ran negative again, as larger tenants continue to downsize and give back space.

"There are parts of Denver that have much higher vacancies and parts that are lower," JLL Senior Vice President David Shirazi said.

Overall, the report shows that nearly 20% of office spaces in Denver are vacant.

For perspective, Shirazi said vacancy rates in a healthy market are considered "to be around 10 or 12%."

In large part, companies are reevaluating their post-pandemic office culture and model.

Commercial real estate in downtown Denver struggling to come back from pandemic lows

"We're kind of in a strange period where COVID has resided a little bit and companies are deciding how they're going to come back," Shirazi said.

A large portion of companies in that group are in the tech industry, as remote work became prevalent during the pandemic.

"I think it's really a case of what their employees want," Shirazi said. "Companies have been in a war for talent for quite some time now, and so employees seem to be kind of in the driver's seat as to whether they want to come back or not. So I think executives are reacting to employee demand."

The report also shows the number of new leases decline for spaces more than 20,000 square feet in Denver.

There are typically over 100 leases on average signed per year pre-pandemic, but since 2020, that number has fallen to 73.

Downtown Denver Partnership CEO Kourtny Garrett said Denver has "not yet seen significant long-term commercial office contraction."

"There's a lot of activity that's coming in," Garrett said.

Like Shirazi, Garrett points out that residential demand to live in Denver is a main indicator that the commercial real estate industry is only experiencing a temporary decline and lull.

"Our residential occupancy and stabilized buildings is above 95%," Garrett said. "So we know people want to live in downtown Denver. So the more units we can bring to the table, the better."

That's where some of these vacant office spaces can see a turnaround. The potential for them to be converted into residential properties is a prominent discussion happening frequently.

"There's a trend nationally, and we've already seen a few properties here in downtown Denver beginning to contemplate that conversion," Garrett said.

It's hard to say when the industry will make a sizable recovery, and experts will be the first to admit that. But they do predict that Denver will be in an enviable position as the employment base continues to grow and more tech and Fortune 500 companies set up camp in the Mile High.