Downtown Denver Real Estate Market Faces Inflection Point

The Denver real estate market is seeing a drastic change in its real estate landscape. With many embracing remote work, The Mile High City’s downtown skyscrapers are witnessing record low occupancy during the weekdays, down to levels we haven’t seen since the dark days of the 2008 crash.

The future of these properties in the Denver metro area remains uncertain as there are no concrete plans to repurpose the currently unused real estate.

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The devil is in the details.

Turning these vacant buildings into apartments seems like a plausible idea, but the execution isn’t straightforward. It’s practically guaranteed that these office spaces are less valuable now than they were before the pandemic. Iconic structures like Republic Plaza, the largest office tower in Colorado and a feature of the Denver skyline since the 1980s, is currently valued at less than half of its 2012 price. This depreciation means a loss of hundreds of millions of dollars, and will undoubtedly have knockdown effects in the Denver economy and the broader markets.

According to Libby Levinson Katz, a Denver housing market forecast expert, the value of these buildings is unlikely to reach their previous highs, echoing the sentiment of other real estate agents in the area. This change in the Denver real estate market is not an isolated phenomenon but is mirrored across cities from sea to shining sea.

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25% of Downtown Denver Office Space is Vacant

Approximately a quarter of downtown Denver’s office space is currently vacant, according to a recent report from CBRE, a real estate services firm. Moreover, companies are seeking to release their rented spaces as they’re largely unoccupied, indicating that the real estate market in Denver may continue to shift.

Commercial real estate prices, similar to home prices, typically move with economic conditions. The current slowdown in the technology sector is impacting Denver’s office real estate market, and higher mortgage rates are affecting landlords who heavily depend on borrowed money. These shifts present a new reality for cities in the United States that have historically relied on a bustling office culture to inject vitality and business into their downtown areas.

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A Direct Impact on the Denver Economy

Denver’s financial future could be impacted as property tax revenues, a significant source of the city’s budget, may decrease with the depreciation in office buildings’ value. In 2022, office buildings contributed about 20% to Denver County’s $1.8 billion in property tax revenues, second only to single-family residential properties.

Interestingly, unlike homeowners in Adams, Arapahoe, Boulder, Broomfield, Clear Creek, Denver, Douglas, Elbert, Gilpin, Jefferson, and Park who are facing higher taxes due to increasing house prices, many commercial landlords aren’t seeing steep tax increases. Keith Erffmeyer, the Denver County assessor, notes that downtown office building values have remained fairly steady over the past two years.

If office building values were to decrease substantially, city officials would have to devise alternative means to replace lost revenues or reduce the budget. As Denver real estate market forecast experts highlight, it’s currently challenging to predict where property values will settle.

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As businesses figure out their future path, some commercial buildings, especially newer ones with modern amenities, are managing to attract tenants. However, many outdated office buildings, like Republic Plaza, are struggling with their future plans.

Despite these challenges, Erffmeyer remains optimistic that Denver will weather the shift in working norms, transitioning to a new normal without a complete market collapse. As we wait for the Denver real estate market to cool, only time will tell how these changes will impact the city’s real estate landscape, particularly for first-time homebuyers looking to buy a house.

July 2, 2023