Downtown Denver’s office vacancy rate nears 34%, believed to be a record

Redaptive, which works to make large companies’ facilities more energy-efficient, is growing and needed more office space. The company, which is committed to staying in Denver, is moving into the eighth floor of McGregor Square in Lower Downtown.

“I think it was important for us to double down on our commitment to Denver. Everyone’s looking for greener pastures,” said Redaptive CEO Arvin Vohra. “But the fundamental reality of Denver is that we’re a sustainability-forward city, and we’re a place that has a phenomenal talent base. It makes sense for us to continue to stick to that.”

Redaptive is bucking a trend of companies leaving the downtown Denver business district or downsizing their office space since offices shut down during the height of the coronavirus pandemic. A slow return to the office and people splitting their work weeks between home and office have sent vacancy rates to their highest point in at least a couple of decades. 

The overall office vacancy rate rose to 33.8% in the second quarter of this year, up from 31.8% in the first quarter, according to the Denver office of the real estate firm JLL. The total vacancy rate metro-wide was 24.8%.

This is the highest vacancy rate on record, based on statistics dating to 1999, said T.J. Jaroszewski, director of Mountain Region Research at JLL. He said vacancies might have been higher in the mid-1980s during the region’s oil and gas bust.

“But, there’s no real way to know. Most professionals and shops consider this period to be the highest vacancy rate on record,” Jaroszewski said.

The percentage of vacant office space was at roughly 15% or lower from 2011 to 2020, a report by real estate firm CBRE shows.

Nationwide, the office vacancy rate reached a record-high 20.5% in the second quarter, according to a report by Cushman & Wakefield, a commercial real estate services firm.

Along with hybrid work situations, what real estate agents call a “flight to quality,” or seeking newer buildings with more amenities, is a factor in the emptying out of parts of downtown. Real estate agents talk about a tale of two cities when looking at office vacancy rates in LoDo — 19.5% — compared with 37.8% for the east side of downtown.

When TIAA announced plans to close its Denver office at 1670 Broadway by July 2026 and move to Frisco, Texas, company officials mentioned lower costs at the new site and the opportunity for “a stronger workplace culture in a newer building.”

Most of the Denver positions at TIAA will be relocated to Texas, resulting in the loss of about 1,000 local jobs.

“Those two areas could not be more different when it comes to tenant demand,” Guy Lachman of JLL said, referring to LoDo and the east side, or Uptown, where TIAA is.

Cherry Creek, a real estate submarket, continues to report single-digit vacancy rates for office space.

“Cherry Creek is kind of an anomaly, not only in Denver but I think across the country,” said Lachman, a vice president on JLL’s tenant representation team in Denver.

Cherry Creek’s vacancy rate for Class A office buildings, more modern and desirable space, is about 5%, Lachman said. The Cherry Creek area, east of downtown and north of the Cherry Creek Shopping Center, is also “a very small micro market when it comes to Class A space,” he added.

And it’s not always about the building itself, Lachman said. “I think that the flight to quality is quality location more so than quality building.”

Lachman said the Block 162 building at 675 15th St. is “a very nice” building, but is about 40% vacant. “The tenants I’ve taken through there just say that they don’t like the area very much.”

Other new or soon-to-open office buildings considered to be trophy spaces have few tenants, Lachman added. High construction costs for tenants to build out a space and waits for permits are dampening demand, he said.

Safety continues to be a concern for people as well, Lachman said.

“Anyone who works downtown can probably tell you that they see various forms of crime and violence from time to time,” Lachman said. “Last week, I walked by a building that had its windows shot out.”

Police and firefighters were at the scene, he said.

Retail outlets and restaurants, which real estate agents say are important attractions for office workers, struggled to stay open during the pandemic and see the ongoing reconstruction of the 16th Street Mall, a pedestrian shopping area downtown, as a hindrance to recovery.

Chef Lon Symensma and business partner Christopher Davis-Massey permanently closed Bistro LeRoux, 1510 16th St. Mall in July. “The last thing anyone wants in downtown Denver’s construction site with no foot traffic is a fancy French restaurant,” Symensma told The Denver Post in a July 31 story.

Lachman said parking downtown is another hurdle for employers trying to convince workers to spend more time in the office. Expecting younger workers to shell out $200 to $300 a month “just to park your car to go to an office building where you don’t want to be is a very hard sell,” he said.

Lachman said office vacancies will likely continue to rise over the rest of 2024.

“I think there were leases signed pre-pandemic that will be expiring in the next 12 to 24 months that will not be backfilled,” Lachman said. “I think many tenants that will remain in the office will either renew or downsize.”