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Feb. 1, 2023

Denver's Office Construction

Denver's Office Construction Pipeline Reaches Highest Level in Five Years

In spite of a slight dip in demand across the Denver office market, construction activity has surged to levels not seen since 2017, with developers aiming to capitalize on tenant preferences for newer, higher-quality office spaces.

Denver boasts one of the most active construction pipelines in the country, with a whopping 3.8 million square feet currently under construction, representing 2.1% of the total existing inventory.

Companies in Denver are now giving more thought to the value that potential office spaces can bring to their businesses, and contemporary office spaces have become a driving force behind increased demand.

Recent-vintage properties, constructed since 2015, have consistently demonstrated positive net absorption, with an average of 280,000 square feet of positive net absorption per quarter since the beginning of 2020. On the flip side, Denver's high concentration of older buildings, constructed prior to 2000, has borne the brunt of decreased demand, with over 2.6 million square feet of negative net absorption recorded in the past year.

Development activity is primarily concentrated in a few hot spots within the Denver market. In downtown Denver, a new 32-story high-rise, 1900 Lawrence, is in progress and scheduled for completion in the second quarter of 2024. Notably, law firm Gibson, Dunn & Crutcher has leased the top floor of this building, marking one of the significant office deals in the fourth quarter of 2022. The firm plans to downsize its current office space by approximately 30% from its current location at 1801 California.

The RiNo (River North) neighborhood is another hub of development, with roughly 1 million square feet currently under construction. This area has witnessed explosive growth over the past decade, typically attracting creative and tech startups. However, in response to cost-cutting efforts, these companies are now reducing their office footprints, resulting in vacancies trending above the market average. Only 17% of the space under construction in RiNo is preleased.

Cherry Creek has also emerged as a development hotspot, traditionally attracting more established banks, small energy companies, and law firms. These types of tenants are upgrading their office spaces as part of recruitment and retention strategies. Cherry Creek's vacancy rate diverged from the market trend in 2021, standing at 6.1%, nearly 900 basis points lower than the Denver office average. Of the 300,000 square feet under construction in Cherry Creek, a substantial 80% is already preleased.