Denver Office Market Report Q2 2021
Vaccinations became widely available in the second quarter, and with restrictions lifting across the city, workers began returning to the office. Leasing activity accelerated in the last 3 months as tenants took advantage of deals available in the market. But there's still uncertainty surrounding the pandemic's long-term impact on office space with many employers testing hybrid work models and right sizing their office footprint.
Occupiers are starting to take advantage of the tenant-favorable environment, particularly when it comes to the abundance of sublease listings that are typically offered at a steep discount. The uptick in sublet leases helped to offset total available sublease space on the market, which decreased for the first time since the onset of the pandemic. The second quarter ended with 4.6 million SF of available sublease space, down from the record-high of 4.7 million SF that was recorded in the first quarter.
Denver recorded over half a million SF of negative net absorption in the second quarter. Since the beginning of 2020, nearly 6 million SF has been vacated across the Denver metro. Vacancy registered 14.4% at the end of the second quarter, which is now above Great Recession levels. Looking ahead, the office market is projected to remain tenant-favorable, with vacancies continuing to rise through the second half of the year before beginning to compress in 2022 through the end of the forecast.
New construction deliveries have increased the amount of available space in the market over the past year. Thankfully Denver's office construction pipeline is thinning with only 1.6 million SF currently underway, a decrease of 50% from the previous year.
A total of 4.6 million SF of sublease space is available, representing a near record for the Denver market. Companies that don't have upcoming lease expirations are looking for options to offload space, either due to financial distress, consolidation, or a permanent work-from-home policy. The significant rise in sublease space is expected to slow the office market's recovery and hinder near-term rent growth. The effects will largely be felt in Downtown Denver, where the vast amount of space is listed. The pace of sublease space coming to market finally slowed in the first quarter.
Denver's office market is in a period of heightened volatility, but there are reasons to be optimistic about its long-term health. Denver has enjoyed some big wins this year with the relocation and expansion of companies, and the market continues to diversify with the emergence of the tech sector's footprint in the local economy.