CBRE Analysis: Denver’s Prime Office Buildings Are Dramatically Outpacing the Rest of the Market in Vacancy

CBRE’s analysis of office markets in 57 U.S. cities has identified a top echelon of office buildings that is thriving while much of the sector struggles to adapt from high interest rates, inflation and reduced demand due to hybrid work.

For Denver specifically, the prime office building vacancy rate was 6.7% as of Q2 2024. With the metro’s total vacancy rate at 22.5%, the prime office rate is 15.8 percentage points lower.

“In the past few years, we’ve seen tenants flocking to high quality buildings with prime locations, new amenities and upgraded spaces,” said Ryan Link, a senior vice president with CBRE in Colorado. “The ‘flight to quality’ trend is nothing new, but this report has shown how real and impactful this is. In the new era of hybrid work, office spaces now must compete with the comfort of employee’s homes. Though they are more expensive, these higher quality buildings have a significantly lower vacancy rate than other lower-priced spaces in markets across the country.”

CBRE researchers and brokers collaborated to identify each market’s highest quality buildings, designated as prime office buildings. The resulting roster of 830 properties comprises just 8% of the U.S. office market by square footage and just 2% by building count. It’s a more exclusive designation than the oft-used Class A, which spans 61% of the U.S. office market.

CBRE found that these prime properties are outperforming the broader office market in most cities, underscoring the ongoing flight to quality in which companies are favoring new, high-quality buildings in an effort to support and increase office attendance. Nationally, the average vacancy in the prime buildings in this year’s first quarter (14.8%) was 4.5 percentage points lower than the rest of the market, a gap that has widened from 1.9 percentage points in the middle of 2018.

Prime buildings in the U.S. attracted an average rent premium of 84% more than the rest of the market in the first quarter, up from 60% in mid-2018. Additionally, prime buildings cumulatively registered 48 million sq. ft. of positive net absorption – meaning more space newly occupied than vacated – from 2020 to 2024. That’s in comparison to the rest of the office market logging negative net absorption – more space vacated than newly occupied – of 170 million sq. ft. in that span.

“The widening gap between prime office space and commodity office space reflects commercial and societal shifts of recent years. This new analysis is one of the clearest indicators yet of the size of that widening gap,” said Mike Watts, CBRE President of Americas Investor Leasing. “Companies seeking to recruit and retain talent are targeting the best quality office space – prime space - to make in-person work as effective and enjoyable as possible for employees and clients.

The prime designation -- like Class A, B and C -- includes some subjectivity and local relativity. Prime buildings are the best in their own metro area, not necessarily nationally. For example, Manhattan has fewer prime buildings – by Manhattan standards – than Dallas/Fort Worth and Washington, D.C. However, many nonprime buildings in Manhattan would grade out as prime in other markets. Similarly, some prime buildings in Dallas, for example, wouldn’t be considered prime in Manhattan.