Denver Records Office Vacancy Above National Average

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The office market continues to be characterized by significant ongoing challenges, with stagnating demand and declining property values. Acccordint to a May 2024 National Office Report, debt service coverage ratios for offices have dropped recently as net operating income and debt obligations move in opposite directions.

With office space demand remaining low, many companies are grappling with financial strains, leading to a continuous decline in their NOI. This trend is significantly impacting properties with maturing loans, as they may encounter heightened distress due to cash flow challenges leading to an inability to meet their debt obligations. “Everyone has been asking “where is this wave of distress?” The reality is that it didn’t materialize with extensions the last few years, but we are seeing an uptick, and this data shows the threat is still there in many areas.” Peter Kolaczynski, director at CommercialEdge says. 

Key Takeaways: 

  • The average U.S. listing rate increased 1.5% year-over-year in April to $37.66 per square foot
  • Up 210 basis points year-over-year, the national office vacancy rate climbed to 18.8% in April
  • Under-construction office space totaled 83.7 million square feet at the end of the month, of which only 3.2 million broke ground this year
  • Office sales totaled $7.49 billion through April, with assets trading at $157 per foot
  • San Francisco vacancy rates climb 650 basis points year-over-year to 25.9%
  • None of the top Midwestern markets kicked off new construction projects in 2024
  • Dallas vacancy rates increased 390 basis points, influenced by heavy construction in recent years
  • Boston closed April with the largest under-construction pipeline in the U.S. at 13.9 million square feet

Denver Takeaways:

  • Denver’s office market vacancy rate climbed to 23.9%, an increase of 390 basis points year-over-year. 
  • The average listing rate for office space in Denver is $30.08 per square foot, down 1.3% from the previous year 
  • Denver has 1.93 million square feet of office space under construction, representing 1.2% of its total inventory. 
  • Year-to-date through April, Denver recorded $166 million in office sales at an average price of $172 per square foot 

In the Western region, Phoenix and Portland recorded vacancy rates below the national average of 18.8%, with Phoenix at 17.5% and Portland at 16.2%. Despite these lower vacancy rates, both markets logged some of the most affordable asking rents in the country: Phoenix’s rents were $27.67 per square foot, up 120 basis points year-over-year in April, while Portland’s rents declined by 7.4% over the same period to $27.22 per square foot. Across the top 25 office markets in the U.S., Minneapolis-St. Paul ($25.83 per square foot), Orlando ($24.84) and Detroit ($22.46) were the only metros with lower rates.

From a transactional perspective, the Bay Area led the region in sales volume, with $469 million in closed office deals year-to-date through April at an average of $231 per square foot. The next-largest sales volume was recorded in Phoenix, totaling $349 million, with properties trading at an average of $199 per square foot, according to our U.S. office market report.

With the office sector facing several challenges, from reduced demand to high interest rates, office sales nationwide have been driven by institutions selling high-quality assets to balance their portfolios, reduce their office exposure, and mitigate risk on their balance sheets. Nonetheless, the market is evolving to include owners who are selling because they are facing distress and upcoming loan maturities.

For more in-depth market insights on the top 25 office markets, read our report here:    

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