The Denver Commercial Real Estate market saw a strong quarter for sales during Q2. The four major property types saw $895,679,172 in sales volume during Q2 2023, but we saw $1,245,695,783 in sales volume for Q2 2024. This represents a increase in sales volume. The largest change came from the reduction in office sales volume. This is driven by persistent work-from-home policies, aging office buildings, higher interest rates, tighter lending standards, and economic uncertainty around this property type.
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 key details for each property type.
Supply
There are 1,142 active listings across the four major property types with 373 retail, 150 multi-family, 335 office, and 284 industrial. In Q2 2023, we averaged 918 commercial listings, we have more active listings now. It is worth noting that the Denver MSA has 30,285 buildings totaling 882M sf of space. Hands down, the most new construction is in industrial being the largest by sf. Multi-family, has quite a bit of growth and retail and office have very little under construction. Let’s take a look demand.
Demand
Demand for commercial real estate is created by people (population growth) and businesses (job growth). When our population is growing, there is an increased demand for housing and shopping. When jobs are created, there is more demand for industrial, office, and retail. With that said, office demand has been decreasing due to remote work policies, so previous metrics for forecasting office demand are no longer applicable.
There were 373 closed sales in Q2 2024, which is an increase from 269 closed sales in Q2 2023. Both the sales and sales volume have increased. The total dollar volume for retail, multi-family, office, and industrial was $1.24B in Q2 2024 compared to $895M in Q2 2023.
Another gauge for demand is net absorption. Absorption is a gauge of the space tenants need to live or operate their businesses. In Q2 2023, Denver absorbed 3.2M sf, but Q2 2024 saw 13.k sf of absorption. This is a huge decrease. The large swing came from office losing (260k) sf of occupancy in Q2 2024 and only receiving 13.4k sf of occupancy in Q2 2023. Also, Industrial decreased significantly from 1.7M sf in Q2 2023 to 188k sf in Q2 2024. Let's take a look at new construction in the various property types.
New Construction
Developers started construction on 560k sf during Q2 2024. This is down from 1.7M sf started during Q2 2023. Therefore, new construction starts slowed significantly. As for sf under construction, we had 8M sf in Q2 2024 compared to 38.4M sf in Q2 2023. The largest declines are coming from (25M) sf less of multi-family and (4.4M) sf less of industrial.
Retail construction starts accounted for 7K sf. Multi-family construction starts were 27 sf. Office construction starts were 395K sf, and industrial construction starts accounted for 157k sf.
Another factor to consider is the total sf of space under construction for each property type. Retail has 465K sf under construction. Multi-family has 20k sf under construction. Office has 2.6M sf under construction, and industrial has 4.9M sf under construction. Altogether there is 8M sf of Commercial Real Estate under construction in the Denver MSA.
Developers delivered just over 2.56M sf to the market in Q2 2024. There were 72.6k sf of deliveries in Q2 2023 so this is a much larger wave of new properties coming into the market. Retail delivered 153K sf. Multi-family developers completed 5.2k sf. Office developers delivered 1M sf. Industrial developers delivered 1.39M sf.
Next, let’s look at vacancy rates to see how much space is not occupied.
Vacancy Rates
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 85.1M sf of vacancy for Commercial Real Estate in the MSA. Although this sounds like a lot, Denver has 882M sf of commercial buildings. Therefore, our commercial vacancy rate is 9.6%. As you can see in the chart below, office historically has a higher vacancy rate than all the other property types.
If we are to understand commercial vacancy rates, we need to compare the current vacancy rates to the long-term vacancy rates. Retail, Multi-family, office, and industrial are all higher than their long-term average, which will limit rent growth.
Rent Growth
Rent growth could be lumped into demand but it is interesting enough to separate into a new paragraph. Industrial YOY rent growth came in at 2.91%. The next highest rent growth came from retail at 1.5%. Multi-family and office both grew less than 1% YOY. The Bureau of Labor Statistics reported that the Denver MSA Consumer Price Index grew by 2.7% YOY in May 2024 for all items and 3.0% for all items less food and energy. Therefore, industrial rents are the only rents exceeding inflation at this time.
Final Thoughts
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, as measured by sales volume, has softened significantly during Q2. Though the transaction volume of smaller properties has picked up. Developers are hard at work building office and industrial properties, but total construction has slowed. Vacancy rates are different among the different commercial property types. We expect office vacancies to stay higher for the foreseeable future. Lastly, rent growth is stalling for retail, multi-family, and office. Industrial rent growth isn't as strong has it was but at least it is still outpacing inflation.
Link to all presentations for each property type: