While many Denver office tenants went remote or fled to Cherry Creek or the ’burbs in recent years, law firm Ballard Spahr did the opposite. 

It stayed downtown, though it swapped out its old headquarters for a newer spot a block away at 1800 Larimer in August.

“It was more about the amenities,” said Damon O. Barry, office manager partner, as he listed features like a full gym with towel service, a green space on the second floor, proximity to Union Station and lobby security. “My goal was to have a space that folks want to come into.”

But a sign of the times was that the company opted for leasing less space. Its new 19,000-square-foot office is one-third smaller than its prior home at 17th Street Plaza. No, the 60-person company isn’t shrinking, Barry said. It’s growing. There’s hybrid options and “hoteling” desks, available to whomever is in the office that day. This is about efficiency.

“Lawyers work differently today than they did when we started in our space 40-plus years ago,” Barry said. “It accommodates workspace for collaboration. We shrunk the size of the offices. We were just able to be more efficient with our space.”

Such trends were predicted after the office market collapsed during COVID. That continued into last quarter with software company Freshworks vacated 44,000 square feet in favor of coworking space, and the state labor department reducing its offices by one-third when it moved across the street to 707 17th St. for 131,100 square feet. Mobile app developer Ibotta bucked the trend, and expanded when it moved to 16th Street.

But no one quite foretold how long reimaging the office would take. Five years after hordes of office workers were sent home to work remotely, the amount of available office space downtown is up, though it may be peaking. 

“In terms of where vacancy sits today, yes — downtown Denver is undeniably in a deep hole, and there’s no way around that,” Thomas Jaroszewski, research director for the mountain region at Jones Lang LaSalle, said in an email. “What’s surprised many of us isn’t just how sharp the initial reset was, but how long the adjustment has taken. This has behaved less like a typical downturn and more like a structural reset tied to how office space is actually used.”

Downtown vacancy rates have increased since 2020, largely because companies that sent workers home during COVID still had active leases. Those were considered filled, even if no one was showing up. Some companies never moved in. Many subleased their unused space, or tried to. Those are expiring and returning to the landlords.

The glut has kept vacancy rates inching up the city’s core business district, ending last quarter at 38.2%, up 3.3 percentage points from fourth quarter 2024, according to data tracked by commercial real estate broker CBRE. In late 2022, it had been 27.2%. 

While Denver’s suburbs fared better with an overall 28.3% vacancy rate — and Cherry Creek’s was at 12.6% — the rest of downtown east of Larimer Street had vacancy rates above 40% in the fourth quarter. Uptown, or the neighborhood east of Broadway, had the highest at 45.3%. 

Another contributor to the glut was new construction. More than 1 million square feet in  new office space has been added to the market since 2022. Downtown has roughly 31.4 million square feet of office space.

And the typical MO of the commercial market is that tenants are attracted to the newest and nicest properties — called “Class A” — so they abandon the older Class B and C properties, which are left with even higher vacancy rates. 

“That (Class C) segment alone is almost 50% vacated, with some buildings being 100% vacated,” said Anthony Albanese, CBRE senior vice president for the Denver market.

Albanese said other issues are at play that are keeping vacancies high. There’s less interest in headquarter relocations due to restrictive business policies. The oil and gas industry has been impacted heavily by the state’s strict environmental regulations.  

“In 2015, oil and gas represented 35% of our downtown occupied space. It now represents seven,” he said. “It’s more about companies feeling like the state really wants them here.”

Some of those older buildings will leave the market as the city’s commercial market evolves and that will tighten up the market again. Some are being converted into hotels or apartments, including the 14-story Petroleum Building at 16th and Broadway. New office projects have dwindled as the market adjusts.

“Downtown Denver isn’t broken, but it is in the middle of a difficult and necessary transition,”  Jaroszewski said. “Vacancy remains high, and that won’t change overnight. At the same time, the market is starting to show early signs of stabilization at the margins — particularly in how tenants are behaving with existing space. The next phase of recovery will depend on adaptation: which buildings can reinvest, reposition or evolve to meet today’s expectations. That’s a slower process than people want, but it’s how durable recoveries actually take hold.”

At least Albanese said he’s not hearing clients say that they’re cutting staff anymore or whether they even need an office. “Those decisions were made three years ago,” he said. 

A bright spot is that there’s been a big decline in subleases, which was nearly 2.5 million square feet companies tried to get someone else to take over the lease. That’s down to 1.2 million, as some spaces got filled while others reverted back to the landlord. That’s about where it was before the pandemic, he said.

“It’s a healthy amount,” Albanese said. “There is a lot less subleasing occurring. That tells you there’s conviction in the space that people have (to stay in the city). The floor is likely where we’re at now in terms of occupancy.”