The Denver Commercial Real Estate market saw another slow quarter for sales during Q4. The four major property types saw 395 sales during Q4 2023 compared to 571 sales during Q4 2022 and 1,112 sales during Q4 2021. Year to date transaction volume for 2023 was 1,511 properties sold. This is driven by higher interest rates, tighter lending standards, and economic uncertainty.
The four commercial property types we are tracking are: retail, multi-family, office, and industrial. It is interesting to look at the Commercial Real Estate Market as a whole and the individual property types. Let’s dive into supply, demand, new construction, vacancy rates, and rent growth for Denver Commercial Real Estate.
Below is a summary of the key details for each property type.
There are 1,009 active listings across the four major property types with 299 retail, 120 multi-family, 362 office, and 228 industrial. Throughout 2022, we average 851 commercial listings at the end of each quarter. It is worth noting that the Denver MSA has 30,073 buildings totaling 862M sf of space. Most of the new construction is in multi-family and industrial with retail and office growing by modest amounts. Let’s take a look demand.
Demand for commercial space is created by people and businesses using the space. When our population is growing, there is an increased demand for housing and shopping. When jobs are created, there is more demand for industrial and office; however, office demand has been decreasing due to the pandemic and remote work.
There were 332 closed sales in Q4 2023, which is down from 358 closed sales in Q4 2022. This represents a decline of (0.92%). The total dollar volume for retail, multi-family, office, and industrial was $1.54B in Q4 2023 compared to $2.10B in Q4 2022.
Another gauge for demand is net absorption. Absorption is a gauge of the space tenants need to live or operate their businesses. In Q3 2022, Denver absorbed 1.63M sf, but Q3 2023 only saw 1.88M sf of absorption. Retail and office lost occupancy while multi-family and industrial gained occupancy. Let's take a look at new construction in the various property types.
Developers started construction on 1.43M sf during Q4. This is up from the 2.33M sf started during Q3. Retail construction starts accounted for 0 sf. Multi-family construction starts were 391 sf. Office construction starts were 148K sf, and industrial construction starts accounted for 1.2M sf.
Another factor to consider is the total sf of space under construction. Retail has 374K sf under construction. Multi-Family has 29K sf under construction. Office has 3.9M sf under construction, and industrial has 8.9M sf under construction. All together there is 13.3M sf of Commercial Real Estate under construction in Denver.
Developers delivered just over 2.6M sf to the market in Q4 2023. This is less than Q3 2023, coming in at 3.7M. Retail delivered 100K sf. Multi-family developers completed 9K sf. Office developers delivered 86K sf. Industrial developers delivered 2.6M sf.
Next, let’s look at vacancy rates to see how much space is not occupied.
A vacancy rate is a metric comparing the amount of unoccupied sf to the total sf of all the buildings in a market. Denver has 58.4M sf of vacancy for commercial real estate. Although this sounds like a lot, Denver has 862M sf of commercial buildings. Therefore, our commercial vacancy rate is 6.8%.
If we are to understand commercial vacancy rates, we need to compare the current vacancy rates to the long-term vacancy rates. Multi-family and industrial properties are very close to their long-term average. Retail is nearly 2% below the long-term average. Office is over 4% higher than the long-term average. Next let’s look at rent growth.
Rent growth could be lumped into demand but it is interest enough to separate into a new paragraph. Industrial YOY rent growth came in at 4.8% compared to the CPI of 6.6% in Q3 2023. All other commercial property types did not keep up with inflation, which erodes some value. Retail rents grew 2.24%, Multi-Family rents grew 1.14%, and office rents grew 1.25%.
In Summary, supply, demand, new construction, vacancy rates, and rent growth are all good key performance indicators for the commercial real estate market in Denver. We have a decent supply of properties for sale. Demand for properties has softened significantly during Q4. This could be due to higher interest rates, etc. Developers are hard at work building multi-family and industrial properties. Construction on Apartments have slimmed down since the last quarter, but they are still building despite the vacancy rates. Vacancy rates are different among the different commercial property types. Office has been consistently higher than the long-term average for several years now. We expect office vacancy to stay higher for the foreseeable future. Lastly, rent growth is stalling for retail, multi-family, and office.
Here is a link to the full presentation for each property type: