Denver’s commercial real estate market is a microcosm of the broader national trends, showcasing resilience in some sectors while navigating significant headwinds in others. From industrial and office spaces to retail and mixed-use developments, Denver continues to adapt to evolving economic and demographic dynamics.
Retail Market: A Beacon of Resilience
Denver’s retail sector has remained robust, underpinned by:
• Low Availability Rates: A scarcity of new construction has kept availability tight, ensuring demand outpaces supply.
• Rent Growth: Retail rents grew 1.7% year-over-year, slightly below the national average of 2.0%.
• Consumer Strength: Positive net absorption in eight of the last ten quarters reflects steady consumer demand.
Implications for Investors and Tenants:
• Retail spaces in prime locations are experiencing consistent leasing activity.
• Opportunities lie in adaptive reuse projects and experiential retail concepts.
Industrial Market: Growth Amid Rising Vacancies
The industrial sector has seen a surge in tenant demand driven by:
• Economic Growth: Rising consumer confidence and wage increases have supported industrial activity.
• Moderate Rent Growth: Forecasted rent growth of 2.1% in 2024 marks the lowest increase since 2011.
Challenges:
• Elevated Vacancies: Higher vacancy rates are expected in the near term due to an influx of speculative construction.
Key Opportunities:
• Strategic investments in last-mile logistics facilities.
• Leveraging Denver’s connectivity for regional distribution hubs.
Office Market: Facing Structural Shifts
Denver’s office sector struggles with oversupply and changing work habits:
• High Vacancy Rates: Among the highest in major U.S. cities, reflecting reduced space-per-worker needs.
• Declining Lease Sizes: Average Q2 lease sizes fell to 3,200 SF, a 42% drop from 2015.
• Investment Challenges: Office investment volumes are down 60% from the five-year average, with valuations correcting by at least 20%.
Emerging Trends:
• Flexible workspaces and co-working models gaining traction.
• Value-add opportunities in repositioning underutilized office buildings.
Denver’s Economy: A Catalyst for Real Estate Trends
Denver’s economic foundation supports its diverse real estate market:
• Population Growth: A decade-long 10.4% growth rate surpasses the national average.
• Job Creation Hub: Home to 10 Fortune 500 companies, with a strong focus on tech and aerospace.
• Labor Market Trends: Despite a 3.4% unemployment rate, tech sector volatility has added uncertainty.
Impact on Commercial Real Estate:
• Growth in tech hubs drives demand for industrial and office innovation centers.
• Retail demand benefits from sustained consumer confidence.
Sector-Specific Insights
Retail:
Denver’s retail market capitalizes on its consumer base. Notable submarkets like Cherry Creek continue to thrive, attracting premium brands and experiential retail outlets.
Industrial:
Submarkets along I-25 are seeing heightened activity, especially in logistics and warehousing. Sustainable building practices are gaining traction to meet tenant ESG goals.
Office:
Downtown Denver struggles with declining occupancy, but suburban submarkets like Greenwood Village show resilience, offering hybrid work solutions.
Navigating Challenges and Opportunities
Rising Interest Rates:
Affecting cap rates across asset classes.
Tech-Driven Shifts:
Demand for smart buildings and sustainable infrastructure is on the rise.
Strategic Moves for Stakeholders:
• Investors should focus on high-demand submarkets.
• Tenants benefit from negotiating favorable lease terms in the office sector.
Conclusion
Denver’s commercial real estate market demonstrates the complexity of balancing challenges and opportunities across its sectors. By staying attuned to trends and leveraging strategic insights, stakeholders can navigate this dynamic landscape effectively.
