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2nd Qtr. 2022 Office Report

The Denver office market is showing early signs of recovery, but still has a long way to go before it reaches pre-pandemic levels of performance. Tenants are again making long-term decisions, and leasing volume in the last four quarters has resembled 2019 levels while the average lease size continues to trend upward. Zynex, Charlotte’s Web, DCP Midstream, and PDC Energy have taken down large blocks of sublease space in the last year, helping to offset rising sublease inventories.

There are plenty of positives to keep the momentum going. Denver’s office market is supported by a diverse mix of industries, including tech companies, oil & gas firms, aerospace and defense contractors, and healthcare providers. These companies have led the charge in hiring, and Denver’s employment market is now above pre-pandemic levels. Ten tech startups
achieved unicorn status in 2021, meaning that a privately held company has reached a valuation of at least $1 billion. A core of young, highly-educated workers populate the Mile High City, which plays a vital role in drawing the metro’s high-paying employers.

While the office market has improved, the risks are clearly evident for both the short- and long-term. Many
companies are settling on either a fully-remote or hybrid work model. The high concentration of tech companies, many of which are more amenable to remote work, have made Denver even more susceptible to this trend that is sweeping the nation. In terms of net absorption as a share of inventory since the start of the pandemic, Denver ranks among the worst-performing office
markets in the U.S. and the vacancy rate has surpassed Great Recession levels. The amount of relinquished space has most likely already peaked, but continued work-from-home initiatives could slow the office market’s growth going forward.

New development has pulled back amid the uncertain environment. After a decade of explosive growth, Denver’s development pipeline has fallen off the list of top markets, on both a nominal basis and a percent of inventory. The projects that are coming online soon though could benefit from flight-to-quality trends as tenants are willing to pay top dollar for amenities that promote health and safety.

Source: CoStar

Denver – CO-Office-Market- 2nd Qtr