Denver Office Vacancy Hits Record High as Investors Circle

Downtown Denver’s office market is fracturing, with soaring vacancies in the city core and a wave of bargain hunters betting on its reset.

Office vacancy rate in the city center reached 38.9 percent in the first quarter of this year according to data from CBRE, marking a new all-time high.

Like many U.S. cities, Denver has split into a tale of two office markets: tenants are flocking to top-tier buildings while lower-quality space languishes. But in Denver, the Dickensian division runs even deeper — cutting across geography as well as building quality.

In upper downtown, home to the traditional central business district, the vacancy rate remains above 40 percent, reaching as high as 46.4 percent in some parts of the neighborhood.

Lower downtown paints a more optimistic picture, with total vacancy sitting just above 20 percent. The area has benefited from the 2014 redevelopment of Union Station, which spurred billions in investment and turned the neighborhood into a transit hub. Even there, recovery is uneven: In the first quarter, tenants in the neighborhood vacated more square footage than they leased, driven in part by a Comcast consolidation that saw the telecommunications company vacate a 33,000 square-foot space near Union Station.

The bifurcation has shaped the city’s response. In 2024, voters expanded a tax increment financing district to include upper downtown, creating a $570 million fund to revive the struggling core.

The city’s quasi-governmental Downtown Development Authority has since begun deploying that capital, doling out bridge financing for office-to-residential conversions and even stepping in as a buyer of distressed assets.

Distress is also drawing opportunistic buyers willing to bet on a city on the mat. Los Angeles-based developer Luzzatto Company scooped up four office towers in downtown Denver, totaling 1.8 million square feet for just over $4.80 per square foot last year. Asher Luzzatto, who leads the company, plans to spend about $470 million to convert much of the space into 1,200 housing units. The vision includes a “vertical village,” a kind of project rare in the U.S. that wraps a neighborhood’s amenities — such as a grocery store, day care, pharmacy and movie theater — into a single building.

Deep discounts and the potential for development authority funding drove his buy in Denver, Luzzatto said.

“Anyone who is able to buy in the last year or two is going to win,” said Andy Klein of the local Westside Investment Partners, the largest owner of downtown commercial space in Denver. “Anyone who is stuck with a basis of $300 per square foot is going to lose, because it’s going to be 10 years before we see that kind of pricing again.”

In November, Brookfield Properties sold two upper downtown towers on 17th Street to Minnesota real estate investor Patrick Halloran for nearly $29 million each, coming out to $41 per square foot. In January, Boca Raton-based investment firm CP Group partnered with New York-based Time Equities Inc to buy Denver Place, a pair of office towers — also in upper downtown — for $47.5 million, or about $51 per square foot.

“Trash and treasures”

Across Denver downtown, the split between Class A and lower class buildings has been stark.

The top tier vacancy rate has oscillated between 29 and 32 percent since midway through 2024, according to the CBRE data. For Class B and C, vacancy has remained above 39 percent since at least the start of 2024, and hit a high mark of 44.4 percent as of March this year.

“Trash and treasures” is how Klein described the downtown market to The Real Deal.

“A lot of the owners of low quality buildings have given up, they’re under water and the loans are worth more than the buildings,” Klein said. In March, a loan tied to the city’s tallest tower, Republic Plaza, went into special servicing due to imminent monetary default.

However, the city’s most desirable markets, such as Cherry Creek North where rents go for $100 per square foot, are tightening, leading prospective tenants to turn toward some of Denver’s forgotten corners.

“Buildings we wouldn’t have even considered a year ago are now making tour lists and ownership groups are starting to pour money into amenities to try and bring tenants back,” said Greg Paugh, a vice president and tenant representative with the local firm Stream Realty Partners. “It’s a good time to be a tenant.”

A year ago, when these kinds of towers would come to the market at a steep discount, Klein was sometimes the only person bidding, he said. Today is much different. Competition has grown from a scant few local firms to a pool of deep-pocketed bidders from across the country.

As the buildings recapitalize and put money into building improvements, some older structures will pull tenants back, but Klein expects the city’s vacancy to be helped largely through the conversion of old office towers into residential, rather than attracting office users into the spaces.

“Many of these older buildings will never be leased as office space again,” Klein said.