2020 Market Insights and Looking Ahead to 2021

The Denver skyline

After more than 10 years of incredible growth in the Denver economy and commercial real estate markets, 2020 dealt a challenging and unpredictable hand, forcing people to stay home from work and recreation and causing serious financial difficulties for many businesses, which of course impacts real estate markets. In order to serve our clients, we keep a close eye on market trends, analyzing data to hone our specialized, commercial real estate-focused approach.

Now that we’ve entered 2021, we can get more nuanced perspective on the changes 2020 brought to our market and what it means for the three main commercial real estate property types.

Office

Office real estate began 2020 in a strong position, with average rents of nearly $28 per square foot after years of steady increases and vacancy rates holding steady at 9.1% even as new product was delivered.

In addition to COVID challenges, the downtown Denver market in 2020 was impacted by the precipitous drop in crude oil prices that took place in April. Of the roughly 29 million square feet of office space in downtown Denver, about 4 million square feet were occupied by energy companies as of the second quarter of 2020.

The biggest impacts are in the sublease market, where, from the fourth quarter of 2019 to the end of 2020, roughly 2.1 million square feet of office space were added to the sublease market, totaling 4.9 million square feet.

Retail

Retail users faced the highest hurdles in 2020, with the number of leisure and hospitality jobs in the metro Denver area falling by more than 30,000 from 2019. Accordingly, the average direct vacancy rate of retail real estate in metro Denver has increased by 21% year-over-year to 5.1% at the end of 2020, while rents remained flat.

Various types of retail fared differently, with power centers and regional malls retaining more tenants while strip malls dealt with growing vacancies, giving back 106,000 square feet over the year.

Industrial

Industrial real estate performed best under the circumstances in 2020 due to drastic increases in online shopping as retailers closed or people simply avoided going to stores.

Leasing activity was down, with about 8.8 million square feet of industrial space leased on a direct basis in 2020, a decrease of about 30% year-over-year, but it is the only property type of the major three to end the year with a net absorption gain.

Industrial developers love Denver and have 6.3 million square feet of new space under construction, which is among the highest levels in the region’s history. Rents climbed by about 20 cents per square foot on average, or roughly 2.4%, to $8.88.

Outlook

Heading into 2021, we’re hopeful that an economic recovery is coming, thanks to the dissemination of COVID-19 vaccines and pending economic assistance that will slowly but surely put our market back on track. Metro Denver is well-positioned to recover, relative to the rest of the nation, thanks to the incredibly healthy position we were in leading up to 2020. In spite of everything, our clients and other companies working the market are still planning and executing big, meaningful projects that will do great things for our region.

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