Avison Young has released its Q3 Office Market Report for Denver.
The Denver office market posted a 30.1% total vacancy ending Q3. This marks its highest level on record as many companies have been downsizing their footprints as a cost-cutting measure. The elevated vacancy rate can be attributed to large tenants relocating to more efficient spaces and the delivery of new construction product. These mixed indicators reflect the complex dynamics and evolving nature of Denver’s office market in response to changing work patterns and economic conditions.
Although the vacancy is high, Denver’s office market exhibited resilience with a 33% increase in leasing activity year-over-year in Q3. Leasing activity has acclimated to the combination of economic uncertainty and the growing prevalence of hybrid work arrangements. A total of 1.1 million square feet of office space, ranging from 5,000 SF to 10,000 SF, has been in demand as seen in recent leasing activity. Leases ranging from 10,000 to 20,000 SF follow closely in this trend with 873,000 SF of office space leased since the start of the year. The positive trajectory confirms a conservative approach to office leasing decisions.
“Small- to mid-sized tenants are leading the way to recovery in the Denver market,” said Marcy Moneypenny, principal and managing director for the Denver office. “They are taking advantage of the opportunity to secure favorable lease rates. We are hopeful that as overall economic conditions improve, these companies will flourish and grow over the coming years, expanding their office space needs and elevating demand which bodes well for the entire Denver region.”
Denver’s office market is estimated to deliver 3.4 million SF of new construction product through 2025. As new product continues to deliver in LoDo and RiNo, the heart of the CBD is anticipated to see elevated vacancy rates as large tenants, such as law firms, relocate to more efficient, new spaces. The vacancy rate is expected to remain elevated for the next few years.
“While the Denver office vacancy is high, the good news is that tenants are beginning to execute lease agreements once again. We anticipate that Q4 will have an uptick in leasing activity as many occupiers who have waited and procrastinated as long as possible are deciding that now is the time to make a commitment to negotiate a new lease or sign a lease renewal or expansion prior to year-end,” noted Howard Schmidt, Avison Young vice president and tenant representation specialist.
Misha Smith, Avison Young Insights Analyst added, “The hybrid work model appears to be here to stay with many companies; however, we have observed that employers have been reducing the amount of time employees are allowed to work from home. Many say a culture of collaboration is important to businesses and that is stunted when employees are absent from the office. We should expect to see an increase in office foot traffic in the months ahead which is also a win for landlords as office valuations depend on strong occupancy.”
Finally, net absorption declined 0.9% across the Denver market. Notably, companies such as Staples and Kärcher North America vacated more than 150,000 SF of space resulting in negative absorption.
Avison Young is a 2023 winner of Canada’s Best Managed Companies Platinum Club designation, having retained its Best Managed designation for 12 consecutive years.
