Denver Commercial Real Estate Market Observations: Mid-Year 2023
As we enter the second half of 2023, I reflect on the past six months and prepare for what the rest of the year has in store. I have gathered insights from my peers in Denver commercial real estate and development through countless conversations and close observations.
While it is important to note that these trends come with caveats, and the market constantly evolves, I hope these distilled observations provide insight into the street-level interactions that influence my daily work.
“Dancers” at Denver Performing Arts Complex Sculpture Park by artist Jonathan Borofsky
Denver Market Highlights
Tech Continues to Thrive: The tech sector in Denver's commercial real estate market shows no signs of slowing down. Companies, big and small, are actively seeking office space to accommodate their growing needs. This surge in demand has led to increased competition among landlords and rising rental rates.
The Rise of Flexible Workspaces: Flexibility is now a key focus for many businesses. Cost-efficient solutions and increased collaboration among professionals are top of mind for leadership teams. However, I'm seeing a marked change in my clients' requirements for office space. Many are fatigued by the overdevelopment of co-working facilities. Instead, they seek solutions that provide privacy and branding opportunities within areas offering amenities such as dining and fitness options.
Sustainability Takes Center Stage: Environmentally conscious practices are front of mind with a growing sector of developers and investors prioritizing green construction initiatives. The Energize Denver Building Performance Requirements shape how the city evolves. Buildings 25,000 and larger must meet a final EUI target by 2030, with interim targets in 2024 and 2027.
Industrial Real Estate on the Rise: The demand for industrial real estate continues to surge due to the growth of e-commerce and the need for efficient supply chains. The result is increased development of large distribution centers and fulfillment warehouses around outlying areas of Denver.
Mixed-Use Developments Gain Popularity: The appeal of mixed-use developments is reaching new heights, as tenants and investors appreciate the convenience and vibrancy these spaces offer. With opportunities to integrate residential, commercial, and recreational areas, these developments enhance residents' overall quality of life and attract diverse tenants.
Submarket Insights
Tennyson Street and Sunnyside are seeing significant updates, transitions, and tenant mix evolving, including an influx of many out-of-town businesses.
Upscale new multifamily projects in the Uptown neighborhood are breathing new life into street-level activity, with a string of new restaurants and retailers coming online this fall, winter, and into 2024.
RiNo continues with a significant supply and demand issue as many tenants clamor for space within a four-block radius. The influx continues pushing high rates, but the need for more parking is catching up with landlords and developers.
Art-activated alleyway in RiNo
Denver International Airport and Green Valley Ranch, and southern markets such as Centennial and Lone Tree hold strong as families and businesses continue to migrate and expand outside the metro core.
Cherry Creek sits at the top of the price range, with rates averaging $55 to $70 per square foot, with CAM charges in the $18 to $20 PSF range.
Retail in LoDo struggles following the pandemic, but there seems to be light at the end of the tunnel as the area draws relocations and expansions in the office sector. Since 2020, the submarket has outperformed the rest of the Denver market for office spaces over 10,000 square feet, with tech and business service companies representing most tenants. With the high demand for Class A office space and no remaining available sites in LoDo, opportunities are revived for restaurant and retail operators to service the influx of office workers in the area.
Mountain market lease rates are unsurprisingly high, with retail space available now in downtown Aspen at $190 per square foot.
Photo by Zachariah Hagy
Tenant/Landlord Relationships
Permitting through the City of Denver still takes considerably longer than expected. This, coupled with high costs for building materials and labor, means Tenant Improvement projects require time, money, and strong collaboration between owners and tenants to reach common goals.
Many landlords offer flexible timelines, incentives, and aggressive Tenant Improvement packages to attract qualified tenants and accommodate building and planning factors outside their control to get deals done.
Landlords are being more bullish than ever when assessing tenant concepts and revenue projections as they look to secure reliable income and improve the value of their assets.
For tenants to succeed, they need a deft understanding of the area they wish to be in and must be able to illustrate a clear need for their products and services.
More than ever, tenants must come to the table with bulletproof business plans and a realistic sense of the time and money associated with opening a first-generation space in this market.
Explore the national retail trends that have prevailed in 2023 and determine which industries and brands are succeeding in a dynamic economic environment.
The Importance of Local Insights
While these trends provide valuable insights into the mid-year state of the market, it is essential to note that they are shaped by various factors unique to Denver's commercial real estate landscape. The dynamics of the local economy, ongoing infrastructure projects, and regulatory changes all play significant roles in shaping the market.
As we move forward into the second half of 2023, staying attentive to the evolving trends and understanding the nuances of the local market will be crucial for success in the Denver commercial real estate sector.
If you’re interested in discussing your commercial real estate needs, please reach out, and let’s connect. Here’s to a prosperous and exciting second half of 2023!
