On the upside, one of Denver’s newest office projects has landed a deal with Bank of America to join its slow-to-grow tenant roster. The downside, however, is that the financial heavyweight will offload a significant amount of space as it prepares to relocate to a much smaller footprint.
The Charlotte, North Carolina-based bank has finalized the lease for a full floor at the Block 162 office tower in downtown Denver, a deal that will boost the project’s occupancy up to about 75% filled. The future space at 675 15th St. will span about 29,000 square feet, developer Patrinely Group confirmed, a marked downsizing from the more than 62,300 square feet Bank of America has been leasing several blocks away at 370 17th St.
“Colorado remains an important growth market for our company, and this move underscores our commitment and continued investments,” Gabby Hodgson, the president of Bank of America's Colorado division, said in a statement to CoStar News.
A spokesperson for the bank declined to provide specifics about the lease term or how many employees would relocate to the Block 162 tower, which finished construction right as demand for office space began to weaken in response to the pandemic.
Companies across the country have spent the past couple of years reevaluating and solidifying their real estate needs, often leveraging lease expirations or landlord negotiations as a way to upgrade their space. That flight to quality has boosted occupancy at the newest and nicest properties but has decimated demand for many older, less desirable alternatives.
That phenomenon has become increasingly acute in Denver, where a procession of recent relocations has resulted in significant cuts to tenants’ previous footprints.
Bank of America’s new lease marks the latest loss the Denver market — especially its downtown core — has endured as tenants have offloaded large blocks of space and pushed the market’s vacancy rate up to historic highs.
Insurance firm Marsh & McLennan earlier this year signed a deal for space in the city’s new 1900 Lawrence tower, a move that cut its earlier office hub by more than half. And just last month, Houston-based oil giant EOG Resources finalized a lease for about 100,000 square feet at 1550 17th St., an agreement that shaved off about 60% of the company’s presence in the city.
Long road to leased
Similar to other markets across the country, Denver has been struggling to fill a record spike in office vacancies, an effort complicated by tenants signing fewer and smaller deals than those in the years before the pandemic.
Depressed demand has pushed the office vacancy rate in the city up to nearly 18%, according to CoStar data, among the highest in the country. The average lease size in the second quarter was just 3,200 square feet, a more than 40% drop compared with deals signed about a decade ago.
Downtown Denver, in particular, has one of the nation’s highest office vacancy rates at about 31%, the data shows.
Tenants in the Denver area have collectively handed back 2.3 million square feet more than they’ve leased over the past year, according to CoStar data. Yet, there are some very preliminary indicators that the rate of large downsizings and move-outs is beginning to slow, and leasing — while far from pre-pandemic levels — is at least nearing a plateau.
Taking a glass-half-full perspective, Bank of America’s move underscores a commitment to physical office space and a willingness to pay a premium for it. Rents at Block 162 average nearly $43 per square foot, according to CoStar, well above the regional average of about $30 per square foot.
It has taken a while for Patrinely to build momentum at the roughly 606,500-square-foot tower. Yet with demand rising across the United States — especially for premium office space — the Texas developer has become increasingly confident about its position in the Denver market.
“Bank of America’s decision to sign a long-term lease at Block 162 is a testament to the premium they put on the quality and flexibility the building offers to create the type of office culture they want for their employees and partners,” said Patrinely’s David Haltom, a regional senior vice president.
He added that the developer is in various stages of negotiations with a handful of other tenants to fill the downtown tower’s remaining space.