Delta variant slows recovery in Denver metro office market

The growing number of COVID-19 cases this summer has prompted Denver subway employers to press the pause button on worker return plans, contributing to a continued rise in the area’s office vacancy rate, according to one update. third quarter update from Newmark, a commercial real estate brokerage.

“Tenants are closely monitoring the impacts and remain cautious, which has affected re-boarding plans. Some office users have delayed their return to office dates; I’ve had several large tenants pushing return dates back to Jan. 1, 2022, ”Sam DePizzol, executive general manager of Newmark in Denver, said in an email.

The region’s office vacancy rate rose to 21% from 20.7% in the second quarter, with the increase in vacancies concentrated in Class B office spaces, the next level compared to class spaces. At high end, where demand has increased. This was the sixth consecutive quarterly increase in the office vacancy rate since the start of the pandemic, when the rate was around 14%.

That said, the increase in the office vacancy rate has been much more moderate than the gains seen in previous quarters and rents continue to hold up.

More space continues to enter the market than absorbed, with available supply increasing by an additional 215,616 square feet during the quarter. This contributed to a “negative” absorption of 2.6 million square feet for the year.

Downtown Denver, which has the highest average rents at $ 42.27 per square foot, also has the highest total vacancy rate at 24.3%. But it experienced negative absorption of 20,102 square feet in the third quarter, a much lower number than in previous periods.

The Denver Tech Center had a vacancy rate of 21.3% and negative absorption of 86,742 square feet. The worst absorption numbers came in the western suburbs, where 133,097 square feet of additional space entered the market in the quarter.

Supply chain issues resulted in construction delays and complicated improvements for tenants, pushing some moves back into the fourth quarter, the report notes. Developers delivered 102,955 square feet of new space in the last quarter, in contrast to 1.1 million square feet delivered in the second quarter.

They have held back new projects, with just under 600,000 square feet of new office construction in the Denver metro, up from 1.1 million square feet in the third quarter of last year.

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