Empty office space in downtown Denver has been piling up ever since the pandemic ushered in the era of remote work. All that unused space is shaving billions of dollars off the city’s office property values.
In 2022, the average cost for a square foot of office space in Denver’s central business district, historically the heart of the city’s office ecosystem, was $357, according to CoStar, a real estate data company. Today, that same space costs $288. That equates to a loss of $2 billion over the past two years.
“In 2022, it seemed like we were headed towards a recovery for the office market,” said Jeannie Tobin, the director of market analytics for Denver at CoStar. “There was a lot of optimism in the employment market … A lot of people were heading back to the office. It looked like a lot of back-to-office mandates were occurring.”
But that momentum stalled out.
“[Remote work] was just a lot more deeply entrenched than I think the greater office market realized,” Tobin said. “We started to see offices walk back their back-to-office mandates, and we started to see office vacancies start to creep up again.”
To be sure, the number of people coming into the office has risen. But on any given day, office attendance remains below where it was before the pandemic. Property values really started to tumble when people realized things might never go back to the way they used to be.
Not all buildings are created equal. Values for newer buildings with all the modern amenities are holding up reasonably well, while older properties are in freefall. Take the Hudson’s Bay Center, a 1980s building off the 16th Street Mall. A buyer paid just $8.95 million for the property a couple of months ago. That marks an 80 percent drop from the last time the building changed hands a decade ago.
It’s not only landlords that have a stake in what happens to Denver’s commercial property values. If building values fall far enough, that could eventually impact the city’s budget. Just like homeowners, commercial landlords pay property taxes based on how much their real estate is worth. That money helps fund all things that make a city run, like schools and police departments.
It’s tough to say when things are going to turn around for Denver’s office market, according to Tobin. As of now, office vacancies are still climbing, she said.
Vacancies in Denver could start to level off next year, in part because so few new office buildings are being built. But that doesn't mean office values will recover right away. It will take a little while for building owners to really understand what the new normal looks like.
“A lot of these investment firms, they have very sophisticated ways to price these buildings, but they also have to believe in them,” Tobin said.
