Downtown Denver is suffering from a significant office supply shortage. For tenants looking for space over 50,000 square feet, options are limited. The shortage is tightly linked to the recent boom in apartment activity, which has driven population growth in the Downtown area and attracted new industries.
"At a high level, a lot of what is driving our Downtown numbers is the residential inventory that has been constructed in the last 10 years," Dave Johnson, executive director at Cushman & Wakefield, tells GlobeSt.com. "Employers know it. One of our danger points is that our cost of living continues to increase. Cities that we have historically competed with, like Phoenix and Austin, are more affordable. I don't know where the breaking point is or when it becomes cost prohibitive."
According to a recent report from Cushman & Wakefield, there are only three available spaces over 50,000 square feet. That segment of tenants is most impacted by the shortage. "Our Downtown market is seeing a shortage of inventory. I am currently doing a search for a 75,000 to 150,000-square-foot tenant that wants to be in lower Downtown, and there are very few options for them," says Johnson. "There just isn't a lot of inventory. There is a flight to quality, and companies are chasing labor."
Union Station has been the main hotspot for activity and any new office developments. "A lot of the new buildings were built around Union Station, but those buildings have filled up. Inventory is coming into RiNo, but it won't come for a couple of years," says Johnson. "That is a distinct submarket."
The tech industry has been the major usurper of space. Johnson says that most of these companies are arriving from outside of the Denver market, and they are looking for high-quality, class-A space. "Companies are coming in from California. We have seen a lot of tech companies coming in from California to grow their employment base, and we are also seeing international companies coming to Denver as well," he says.
As a result of the shortage of space, some companies are looking in suburban markets as well, but access to public transportation is vital. "We are also seeing demand go to Colorado Springs. We see more demand heading to that area," says Johnson. "Public transit is a differentiator. If you can demonstrate proximity to a light rail station, it is a differentiator in suburban markets."
While activity has been strong this year, Johnson says that office momentum is slowing, and it will likely be an ongoing trend in 2020. "We are seeing a slowdown at a macro level, but I am not predicting a recession in 2021," he says. "There is going to be a continued slowdown next year."
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Kelsi Maree Borland
