Takeaways from the 2020 State of Downtown report
Denver’s office market serves as a prime example of an industry sector that experienced great strength prepandemic and already is seeing great impact as remote work became mandatory for a vast majority of downtown employers.
Driven by demand for space from existing companies like KPMG and Salesforce and new companies like Checkr entering the market, the downtown office market remained strong with stable average lease rates ($35.32 per square foot) and vacancy rates (10.3%).
A positive 400,000 sf was absorbed in 2019, bringing the total absorption in 2018 and 2019 to nearly 2 million sf. However, even before the pandemic hit, 2020’s net absorption was projected to be negative for the first time since 2016. This projected downward trend was due to several large buildings coming on line and likely will be amplified due to the impact of the COVID-19.
The office investment market reflected the strong performance, as existing players doubled down on their investments and new ones entered the market for a total of $1.4 billion in office investments.
Developers have continued to invest in the city center. Over the last decade, downtown Denver has experienced a historic development cycle, adding over 4 million sf of office – plus over 10,000 residential units and more than 3,500 hotel rooms. Investors continue to see the downtown Denver opportunity, with 26 development projects under construction or planned – adding up to roughly 1.3 million sf of office space, plus 1,500 residential units and 1,000 hotel rooms in the pipeline.
As companies expand their footprints and relocate to downtown, Denver’s job market thrived in 2019 – a factor that certainly fuels the office market. Downtown Denver added 6,563 new jobs last year, resulting in record-high total employment of 145,077. This 4.7% job growth was fueled by a host of new company locations and major expansions – 13 announcements in total.
Top-flight talent continues to call the Denver region home, with a fast-growing workforce that now tops 1.7 million people. The region also produces great talent each year, thanks to the area’s 11 colleges and universities.
In 2019, Denver experienced a record-low unemployment of 2.3% – more than an entire percentage point lower than the national rate. Today, we face historic-high unemployment rates, with 11.3% unemployment in Colorado.
So, what signals does this data give us as we look to emerge from the pandemic?
- Being innovative in the creation of spaces where people can safely convene and collaborate as we continue to build workplaces fit for today and ready for the future.
- In policymaking, consider how zoning, fees and tax structures impact office development and redevelopment. A pro-business policy environment is key in supporting recovery and growth.
- Investment in public-sector and other development projects is essential to recovery. They contribute much-needed dollars to the economy, keep people work and position our city well for the future.
- We have always said, “If we build it, they will come.” Going forward, we need to lead the nation in building a downtown that protects people’s well-being, while still remaining a vibrant urban center.
Last year ended on a high note, with economic indicators up nearly across the board and some data points setting all-time records. The 2020 State of Downtown Denver report – which captures data on every major element of the center city’s economic well-being for the 2019 calendar year – was published in the midst of the global COVID-19 pandemic and subsequent economic recession, the likes of which have not been seen in nearly 100 years.
While the State of Downtown report may reflect a reality significantly different than that we face now amid the pandemic, it serves as an important tool to better understand how to move forward in pursuit of economic recovery. The report, which can be downloaded at downtowndenver.com, tells the story of a downtown that – for decades – has worked with grit, determination and unmatched collaboration to build strength and resiliency (it’s no wonder Moody’s ranked Denver as a top 10 city best poised for economic recovery).
We are reminded that we have never experienced highs without lows, and that economic prosperity has never been born without challenges.
Featured in CREJ’s June 2020 Office Properties Quarterly