Development, storefronts, pedestrians and residents are slowly returning to Denver’s downtown core at pre-pandemic levels, but one chink in the armor remains ahead of the city’s recovery.

Stubborn downtown office vacancy rates reached a new high in the third quarter at a rate not seen in decades, according to the Downtown Denver Partnership’s 2023 State of Downtown Denver report. That number comes from CoStar data, but CBRE reports the number is closer to 30%.

“The greatest vulnerability that downtown Denver faces today — which is very true of every major metro and every downtown across the country — is commercial office [market],” DDP President and CEO Kourtny Garrett told the Denver Business Journal in an exclusive interview and sneak peek at the report.

Average daily pedestrian counts downtown are at 225,000 people per day, just 25,000 shy of averages in 2019. Big events have drawn up to 300,000, and nights and weekends sometimes exceed 2019 levels.

At the same time, the city center experienced residential growth of 1,000 more people this year and is on track to reach or even surpass a projected 40,000 people by 2028, according to the report. About 3,000 residential units are currently under construction to support growth in that sector.

Having residents and foot traffic has contributed to sustained interest from food and beverage and other businesses in the area, Garrett said. More than 27 new ground-floor businesses opened this year, including 17 new bars and restaurants, and the DDP counts 14 projects under construction at the end of 2023 that total $1.37 billion in development.

Long-term success for the city center, though, means ensuring a holistic and multidimensional downtown, Garrett said. Leaving out the workplace is not an option.

From a recruitment standpoint, Denver and Colorado as a whole continue to be very attractive markets, according to the report. The problem stems not from fewer companies choosing Denver, but choosing to relocate or make any changes to their office space, she said.

“For us, it’s a multipronged approach of business recruitment, business retention,” Garrett said, and finding other creative ways to make downtown a destination.

Adaptive reuse is an option that many in the city continue to explore. Adding residents will ultimately keep more workplaces in the area, Garrett said.

“If we can continue to build this place where people want to live, it will then also be a place where people want to work,” Garrett said. “When you have a strong residential population, it naturally begets really beautiful places.”

Depending on the metrics used, Denver appears to be ahead or in the middle of the pack in its recovery compared to similar cities in the U.S.

DDP’s rankings place Denver’s downtown ahead of many peers in job growth, geographic inclusion and fostering business for women entrepreneurs. ​​The downtown employment base is now just 300 jobs shy of 2019 levels, according to the report.

Tech-related jobs account for a larger share of the area’s worker base, which could work against some efforts to boost weekday traffic as they are more likely to allow for remote work.

Garrett said the DDP also isn’t wearing rose-colored glasses about a tight lending market that could keep a lid on construction.

Still, she points to several game-changing projects underway in the area that indicate a sustained upswing: Ball Arena and Auraria Campus redevelopment, River Mile, and 16th Street Mall renovations.

“You don’t see that type of transformational development happening in a lot of cities,” Garrett said. “There is confidence in the market to say that these projects haven’t fallen by the wayside over the course of the last three years.”

About 30% of rental listings on Zillow advertised concessions in October, a surge that signifies a notable shift in the rental market. Within the past five years, concessions reached a peak in February 2021, with 36.7% of rentals offering incentives, coinciding with low renter demand during the pandemic. Those concessions then dropped as far as 19.4% in July 2022. However, the current rise comes as typical rent prices are nearly 30% higher than pre-pandemic levels, and annual rent growth just ticked back up(opens in a new window) after nearly two years of slowing down.

“The pandemic era’s increase in concessions was a direct response to decreased renter demand. Currently, we’re witnessing a different scenario where the demand for rental housing is high, but there’s been a notable rise in supply,” said Anushna Prakash, an economic research data scientist at Zillow. “To differentiate themselves from newer, potentially more amenity-rich apartment buildings, property managers are stepping up their game, offering more incentives to attract potential renters with a broader range of choices.”

Nationwide increase in concessions

Zillow data shows an astonishing 43 of the nation’s largest 50 metropolitan areas have seen a rise in rental concessions compared to last year. The most deal sweeteners are found in Salt Lake City, Utah, and San Jose, California, where more than half the rentals listed on Zillow in October advertised concessions.

Construction boom and its effects

This trend is especially pronounced in metro areas experiencing a construction boom. According to Fannie Mae’s Mid-2023 Multifamily Construction Update(opens in a new window) , markets such as Washington, D.C., Dallas and Austin are seeing more new developments, with Dallas and Austin having 74,000 and 66,000 new units, respectively, either recently completed or underway .

Zillow’s data reveals a similar upswing in concessions in those metros and others, including Phoenix and Atlanta, which are also among the top markets for new multifamily construction. This correlation highlights how the influx of new apartments is likely prompting housing providers to offer incentives to attract renters.