Colorado-Real-Estate-Journal_465854

T he office leasing market continues to grapple with rising vacancy and economic uncertainty, but a deeper look reveals evolving ten- ant preferences that are reshaping demand. While headline figures highlight downsizing and increased vacancies, the underlying story cen- ters on a clear flight to quality and a growing emphasis on flexibility – trends that are transforming how space is leased and valued. n Flight to quality drives market dynamics. Despite rising vacancy rates across all submarkets, Class A office spaces continue to outper- form other building classes. This trend reflects a growing willingness among tenants to pri- oritize modern amenities, prime locations, and enhanced workplace environments over simply securing the cheapest available space. Many companies are investing in premi- um spaces as part of efforts to attract and retain tal- ent and facilitate employees’ return to the office after years of remote work. n Downsizing is strategic, not simply reactive. Corporate downsizing remains a prominent theme, but it reflects strategic shifts rather than wholesale retreat. Sev- eral large tenants – including major firms such as Anthem and Merrick – have reduced their footprints by consolidating into higher-quality, more efficient space. This behavior points to a market where smaller, better-located, and more amenity-rich spaces are pre- ferred. Rather than seeking expan- sive square foot- age, tenants aim to optimize their physical footprint for hybrid work models and more collaborative envi- ronments. n More leases, smaller spaces. The leasing velocity in the first quarter actually increased, with 43 more leases signed compared to the prior quarter. However, the average lease size declined, meaning the total square footage leased dropped slightly year over year. This suggests tenants are leaning toward flexibility and selectivity. Many are opting for shorter leases or smaller suites that can adapt to evolving workforce needs, under- scoring the growing importance of flexible leasing terms and turnkey spaces. n Economic uncertainty delays expansion. Wider economic fac- tors are influencing office demand. Concerns about tariffs, labor market instability and overall economic growth have led many companies to postpone or scale back long-term real estate decisions. Office-using employment has shed more than 2,000 net jobs so far in 2025. This uncertainty has dampened immediate expansion plans, as tenants await greater clar- ity before committing to new leases or expansions. n Vacancy rises, but availability contracts. All submarkets expe- rienced rising vacancy due to negative absorption, but somewhat paradoxically, the total amount of available space – both direct and sublease – actually decreased. This could indicate that while some ten- ants are releasing space, others are holding onto existing space but remain cautious about growth. Downtown vacancy rose notably, driven largely by TIAA’s departure, but sublease availability continues to gain traction, especially for high- quality “plug-and-play” spaces. n Sublease market gains momen- tum. An emerging feature of the market is the narrowing gap between sublease and direct lease rates. Sublease median asking rents have risen, reflecting strong interest in move-in ready, flexible options that require less upfront investment from tenants. This trend signals that tenants value the ability to scale space up or down quickly without the com- mitment of long-term direct leases, especially in an uncertain economic environment. n Outlook: Cautious optimism. The current market can be summarized INSIDE Future office PAGE 10 The future of office design: Embracing flexibility, sustainability and technology June 2025 PAGE 15 PAGE 16 Industrial tenants Now might be the time to relocate or renegotiate your industrial lease Reshaping industrial Manufacturing in Denver has evolved beyond traditional models Please see Hake, Page 12 Flexibility, premium space shape leasing market Whitney Hake Senior managing director, Newmark Grace Lessard Associate director, Newmark