In 2024, Denver is grappling with one of the highest vacancy rates, standing at 16.3%. The pervasive challenge of low office utilization, seen nationwide, is particularly pronounced in Denver. This susceptibility is attributed to the city’s significant reliance on the tech sector workforce, known for their prominent adoption of flexible workplace arrangements.
The prevailing high-interest rate environment has expedited this trend. Faced with economic uncertainties and slower growth, tech companies, in an effort to cut costs, are laying off workers and shedding office space. Much of this surplus office space is entering the sublease market, currently totaling around 6.0 million SF. While this represents a decrease from the peak observed earlier in the year at 7.9 million SF, it remains a substantial obstacle for landlords leasing direct space.
The CBD (Central Business District) is particularly impacted, with 5.8% of office space available for sublease—well above the 3.2% average across the entire Denver market. Notably, average asking rents for sublease listings in the CBD are 47% lower than direct listings. This is a significant shift from late 2019 when both direct and sublease listings were priced equally, reflecting the increased challenges in the current market.
Denver is anticipated to struggle with elevated office availability for an extended period, as leasing trends indicate companies are adjusting their footprints to reduce space-per-worker requirements upon lease expiration. Leases signed in the third quarter averaged around 3,400 SF, marking an improvement from the trough observed in early 2021 at 2,600 SF. Nevertheless, this still represents a roughly 40% decrease in average lease size since its peak in 2015.