By Peter Lamas, MAI

Cold storage is a distinctive commercial real estate asset class because its value is closely tied not only to the underlying real estate, but also to the logistics operations it supports.

Having appraised hundreds of cold storage and food processing facilities across the country, I have seen the industry evolve from conventional facilities with 36-foot clear heights to highly automated buildings exceeding 140 feet. Most newly developed facilities now range from approximately 50 to 70 feet in height, although some extend well beyond 100 feet.

Because of the asset class’s specialized nature and the limited availability of comparable market data, credible analysis requires a deep understanding of both real estate and cold-chain logistics. NVC leverages its industry relationships and specialized experience to provide clients with timely market analysis and well-supported appraisal reports for cold storage and food processing properties.

Newer, owner-occupied cold storage facilities are often located in rural markets near food producers and processing plants. Other facilities are located in major metropolitan areas, where proximity to transportation networks and end users is critical. The sector became especially attractive during the COVID-19 pandemic, when demand increased for food distribution space and temperature-controlled medical storage.

As institutional capital and investor interest accelerated, however, development activity eventually began to outpace tenant demand. At the same time, construction costs rose, creating pressure for higher lease rates. With demand moderating in some markets, speculative projects have faced longer lease-up periods and elevated vacancy.

What Happened—and Where Is the Market Heading?

A few weeks ago, I attended the CREDA I.Con Cold Storage Conference in Dallas, where I reconnected with industry contacts and heard panel discussions on the current state of the sector, Wall Street’s view of cold storage, new builds versus retrofits, and the unique challenges associated with cold storage development.

Following are several of the conference’s key takeaways.

• Cold storage properties typically carry more operating risk than traditional warehouse facilities because their performance depends heavily on logistics operations. Labor costs, food-production conditions, energy expenses, and changes in consumer preferences can all affect an operator’s performance.

• Major owner-operators—including Lineage, Americold, Agile, and others—operate as logistics businesses in addition to owning or leasing real estate. They receive products, store them, and distribute them to end users. This model differs from many conventional warehouses, which may store an owner’s inventory or goods for a range of users.

• Tariffs, inflation, labor costs, and energy costs can all increase operating expenses for cold storage operators. While these factors may not directly determine real estate value, they can affect an operating company’s profitability and the feasibility of a facility or development.

• Supply continues to outpace demand in portions of the market. That said, several industry participants reported that transaction activity in 2026 has improved relative to the prior two years, even though the overall market remains relatively slow.

• GLP-1 medications may influence long-term food demand and consumption patterns. While lower overall food consumption could be a concern for the industry, increased demand for protein-rich and other refrigerated food products could support demand for temperature-controlled storage relative to dry-food storage.

• The average cold storage facility is estimated to be about 40 years old. New construction reportedly has represented only about 15 percent of the existing asset base over the past five years. As older facilities approach the end of their economic or functional lives, demand for newer and more efficient facilities could increase.

• Obsolete cold storage facilities may be suitable for adaptive reuse, including conversion to studios, data centers, or other specialized uses, depending on the building’s location, physical characteristics, and utility infrastructure.

• Some industry analysts estimate that the market currently has approximately 10 percent excess supply. The timeline for absorption remains uncertain and will likely vary by market, building quality, and location.

• Merger-and-acquisition activity has slowed in the cold storage industry. However, capital remains interested in the sector, and acquisition activity could increase as more attractive opportunities emerge. Investors are generally unwilling to overpay simply to establish a position in the market.

• Cold storage REITs are often valued using EBITDA multiples, with conference participants citing a typical range of approximately 12x to 16x EBITDA. In some cases, roughly 75 percent of enterprise value may be attributable to real estate and 25 percent to the operating platform, although the allocation can vary considerably by company and circumstances.

• Geopolitical uncertainty, tariffs, and rising input costs continue to affect the broader food-processing industry, including packaging, fertilizer, transportation, and imported food products.

• Developers are generally focused on build-to-suit projects rather than speculative construction until existing speculative space is absorbed. Several participants suggested that this could take 12 to 24 months—or longer.

• The pace of lease-up remains uncertain. Landlords may need to reduce asking rents or offer greater concessions to compete for tenants, potentially affecting projected returns. In some cases, users may find that purchasing vacant facilities is more financially attractive than leasing space at current asking rents. Ultimately, location, building quality, and operating efficiency are likely to be key differentiators.

Bull and Bear Perspectives
The conference discussion reflected both optimism and caution.

The Bull Case
Those with a more positive outlook believe economic occupancy could improve in the near term, particularly if inflation moderates and demand for protein-focused food products continues to grow. They note that GLP-1 users may consume more protein and other temperature-sensitive foods, even if overall food consumption declines.

Optimists also see opportunities for cold storage operators to serve a broader range of users, including companies in candy, pet food, pharmaceutical, and other temperature-controlled product categories.

The Bear Case
Those with a more cautious outlook point to continued economic uncertainty. Rising costs can compress margins for food producers, processors, and logistics operators. A key question is whether companies can pass higher costs through to consumers and restore historic margins.

There is also uncertainty around the long-term impact of GLP-1 medications. If consumers eat less overall, the resulting reduction in food volume could weaken demand for temperature-controlled space. The degree to which increased protein consumption offsets that trend remains to be seen.

Second Generation or Build-to-Suit?
The choice between second-generation cold storage space and build-to-suit facilities is another important consideration. Second-generation space can often be delivered more quickly, but users may need to accept compromises such as lower clear heights, less efficient layouts, or “box-in-a-box” construction. Build-to-suit facilities can better meet a user’s operational requirements but generally require a longer-term commitment.

At present, a 15-year lease term is often viewed as a minimum for build-to-suit cold storage development. Without that level of commitment, developers may be reluctant to begin new projects before the current inventory of vacant space is absorbed.

When Will Cold Storage Turn “Hot” Again?
Based on current market conditions and feedback from industry participants, it will likely take at least 12 to 24 months—and potentially longer—to absorb the existing supply of vacant speculative space. Once that occurs, speculative development may gradually resume.

The timing will also depend on broader economic conditions, including interest rates, inflation, construction costs, and food-sector demand. A more favorable interest-rate and inflation environment could improve project feasibility, strengthen tenant demand, and support renewed investment in the sector.

Cold storage remains a specialized and essential component of the food and pharmaceutical supply chain. While the near-term outlook is tempered by excess supply and operating uncertainty, the sector’s aging inventory, evolving consumer demand, and need for more efficient facilities may create meaningful long-term opportunities.

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Demand Overtakes Deliveries, Signaling a Turning Point

The U.S. apartment market took a meaningful step toward stabilization in the second quarter of 2026 as stronger leasing demand and declining deliveries began absorbing inventory accumulated during the recent construction cycle. As noted in more detail below, perhaps the most notable trend in the national market is the fragmentation of performance (as measured by rent growth, vacancy trends, and sales volume) by region.

This change is important because it represents an early shift away from the supply-driven deterioration that pressured occupancy, concessions, and rent growth during the past several years. Demand is not returning to the unusually high levels recorded during the post-pandemic recovery, but recent leasing activity suggests that apartment demand remains more resilient than many market participants anticipated entering 2026.

Improving Headline Vacancy Masks Pressure at Stabilized Properties

National vacancy is moving in a favorable direction, but the market has not fully recovered. Stabilized vacancy, which excludes recently completed properties still undergoing lease-up, stands at 6.8% after increasing 40 basis points since the first quarter of 2025. The difference between overall and stabilized vacancy indicates that improving occupancy at newly delivered communities is partly offsetting continued pressure within existing properties.

Conditions also vary by quality segment. Class A vacancy declined to 9.6% as absorption increasingly surpassed deliveries, although stabilized Class A vacancy remained elevated at 7.1%. Vacancy stood at 7.9% among Class B properties and 6.0% among Class C properties. For owners, lenders, and appraisers, these distinctions reinforce the importance of examining concession exposure, tenant retention, and competitive positioning rather than relying only on headline vacancy.

Rent Growth Is Recovering, but Geography Determines Performance

National apartment rent growth improved to 1.3%, compared with a low of 0.3% in the first quarter of 2026. Growth was relatively consistent by property class, ranging from 1.3% among Class B and Class C properties to 1.4% for Class A assets. Even so, higher-quality properties continue to face pricing constraints where elevated vacancy and concession usage remain prevalent.

Geographic performance is considerably more uneven. Supply-constrained markets led national rent growth, including San Francisco at 11.1%, San Jose at 6.8%, the East Bay at 3.9%, Chicago at 3.1%, and New York at 2.8%. Conversely, 19 of the 50 largest apartment markets continued to report negative annual rent growth. San Antonio declined 3.3%, while Austin, Las Vegas, and Denver each fell 2.3%. Vacancy has started to improve in several oversupplied markets, but operators may need additional time to reduce concessions and regain meaningful pricing leverage.
 
A Shrinking Construction Pipeline Supports the Medium-Term Outlook

The development pipeline provides the clearest support for a more constructive outlook. Apartment deliveries reached nearly 696,000 units in 2024, the highest annual level since the mid-1980s. Over the four quarters ending in the second quarter of 2026, deliveries declined to approximately 469,000 units, representing a year-over-year reduction of about 24%.

The pullback in construction starts has been even more pronounced. Starts totaled approximately 62,000 units during the second quarter, the lowest quarterly level since 2012 and roughly 70% below the cycle’s peak. Units under construction have fallen from nearly 1.2 million at the 2023 peak to approximately 575,000. Elevated capital costs, slower rent growth, extended lease-up periods, and tighter lending standards have reduced development feasibility. This contraction should gradually relieve competitive pressure, although markets such as Miami, Charlotte, Raleigh, Tampa, and Nashville retain sizable pipelines that could delay local recovery.

Investment Liquidity Is Returning, but Capital Remains Selective

Trailing 12-month apartment sales volume reached approximately $200 billion through July 2026, extending the sector’s year-over-year expansion. Momentum weakened in June and July, however, as transaction counts and dollar volume fell below prior-year levels. Modest rent growth and Treasury yields in the mid-4% range continue to restrict pricing flexibility, even as bank lending standards show signs of easing.

Private capital accounts for more than half of acquisitions, reflecting greater flexibility in return thresholds and property business plans. Institutional investors represent close to one-quarter of activity and remain focused on stabilized assets in supply-constrained markets. From a valuation perspective, improving liquidity is constructive, but underwriting must still account for financing costs, achievable effective rents, concessions, lease-up risk, and market-specific capitalization-rate expectations.

The Outlook Is Gradual Stabilization, Not a Rapid Recovery

The national apartment market appears to be moving through a gradual stabilization period. Declining construction and resilient demand should help additional markets absorb excess inventory through 2026 and 2027, supporting better occupancy and eventually firmer rent growth. Near-term results will remain uneven, particularly in markets with substantial lease-up inventory.

Market participants should monitor the pace of deliveries, concession usage, employment growth, household formation, financing costs, and the relationship between asking rents and achievable effective rents. The most meaningful evidence of a durable recovery will be sustained declines in stabilized vacancy accompanied by stronger effective-rent growth.

KEY MARKET TAKEAWAY:

Apartment fundamentals have lagged prior quarters’ expectations from many market participants. Nonetheless, fundamentals are improving, as demand overtakes declining supply, but elevated stabilized vacancy and wide geographic differences continue to require disciplined, property-specific underwriting.

The U.S. manufactured housing sector entered 2026 with historically strong community occupancy and durable demand, even as new-home shipments showed signs of leveling. National manufactured housing community occupancy increased to 95%, while approximately 95,947 new manufactured homes were shipped during the first 11 months of 2025, a modest 0.3% decline from the prior-year period. These figures suggest that demand for manufactured housing communities remained resilient despite modest softness in new-home shipments.

Affordability remains the industry’s principal demand driver. Manufactured homes can cost up to 50% less per square foot than conventional site-built housing, an increasingly important distinction as the median price of a new home reached $414,000 in December 2025. Elevated mortgage rates and home prices continue to push first-time buyers, middle-income households, retirees, and other price-sensitive consumers toward factory-built alternatives. Seniors represent a particularly important buyer segment, supported by demand for lower-maintenance homes, single-level layouts, and age-restricted communities.

Investor activity is also changing the structure of the market. Institutional owners and real estate investment trusts have expanded their presence in manufactured housing communities, attracted by high occupancy, limited new supply, relatively low recurring capital requirements for resident-owned homes, and the stability of land-lease income. Consolidation may support more predictable orders for new and replacement homes, but it also raises expectations for standardized products, efficient distribution, and professional service. For community owners, sustained occupancy and constrained competitive supply may support rental income, although higher financing costs and resident affordability must remain central to underwriting.

Regulatory modernization could broaden the sector’s long-term appeal. Updated federal construction and safety standards implemented in September 2025 expanded design flexibility, accessibility, fire-safety provisions, and options for multi-unit manufactured housing. At the State level, Texas Senate Bill 785, effective September 1, 2026, requires many municipalities with zoning regulations to accommodate new HUD-code homes in at least one residential district. These changes may reduce development barriers, but zoning restrictions, financing availability, compliance costs, and local approval processes remain meaningful constraints.

The near-term outlook is stable with modest growth expectations. Industry revenue is projected to decline 2.9% in 2026 before returning to longer-term growth, reaching an estimated $54.0 billion by 2031. Market participants should monitor shipment trends, mortgage rates, community rent growth, resident affordability, zoning reform, and the pace of institutional acquisitions.

Key Market Takeaway:
High occupancy and persistent housing affordability pressures continue to support manufactured housing values, but financing costs and resident affordability warrant disciplined underwriting.

IOS Is Emerging as an Institutional Asset Class, but the Land Is Only Part of the Investment

Industrial Outdoor Storage has evolved from a fragmented, owner-occupier-oriented property sector into an increasingly recognized component of the U.S. industrial real estate market. The sector’s appeal reflects strong historical rent growth, low vacancy, limited new supply, and its essential role in logistics, construction, equipment rental, infrastructure, and other asset-intensive industries.

According to Newmark and Alterra research, IOS rents increased 123% between 2020 and 2025, compared with 58% for bulk warehouse properties over the same period. National IOS vacancy remained comparatively low at 3.6% in the second quarter of 2026, versus 6.5% for the broader industrial market. Rent growth has moderated from its exceptional post-2020 pace, but the sector’s occupancy advantage continues to attract investors seeking differentiated industrial exposure.

Zoning Is Not Merely a Regulation; It Is a Core Component of IOS Value

IOS properties are unusual because their economic value is driven primarily by the land and the legal ability to use that land for outdoor storage. Buildings are generally limited, with site coverage often below 20% to 25%, and some properties have virtually no structural improvements. As a result, ownership of an IOS parcel does not necessarily provide a durable economic interest in its current use.

If outdoor storage is permitted by right, the property typically has a more defensible leasing and investment position. Risk increases when the operation depends on a conditional or special-use approval, variance, temporary permit, or legal nonconforming status. These approvals or use rights may contain expiration provisions, restrictions on transfer, operating conditions, or limitations triggered by discontinuance, changes in use, or future expansion.

The central underwriting question is therefore not simply whether the parcel is zoned industrial. Investors and appraisers must determine whether outdoor storage is allowed as a principal, accessory, conditional, or nonconforming use, and whether that right is permanent, transferable, enforceable, and capable of surviving changes in ownership or tenancy.

Entitlement Duration Directly Affects Lease Duration and Income Security

Zoning durability becomes especially important when an owner seeks to execute a long-term lease. An IOS tenant is not primarily leasing a building. The tenant is leasing legally usable acreage for truck parking, container storage, equipment staging, construction materials, fleet maintenance, or similar operations.

If the entitlement expires before the end of a proposed lease, neither the landlord nor tenant can confidently treat the site’s outdoor-storage capacity as secure for the full term. That uncertainty can shorten the achievable lease duration, reduce rent, discourage tenant improvements, constrain financing, and weaken the property’s residual value.

The distinction is best understood as a potential loss of use rather than a loss of land. The owner retains the parcel if an IOS entitlement expires or a nonconforming use is extinguished, but the property may lose the economic utility that supported its IOS income. Conversion to another industrial use could require new approvals, capital improvements, environmental work, construction, and substantial downtime. Consequently, two physically similar parcels can have substantially different values solely because one possesses a more permanent entitlement.
Regulatory Barriers Create Risk for Individual Sites but Scarcity for the Sector

The restrictions that complicate IOS ownership also help protect properly entitled properties from new competition. Zoning limitations, community opposition, and redevelopment pressures have constrained purpose-built IOS additions even as bulk warehouse construction expanded rapidly after the pandemic.

This supply divergence is visible in market performance. IOS has generally maintained lower vacancy and stronger rent growth than conventional bulk warehouse properties. Investors surveyed by PwC estimate that approximately 20% of eligible IOS sites may eventually be converted to warehouses, potentially reducing already limited inventory. The continuing loss of viable outdoor-storage land could support a scarcity premium for sites with stable, transferable rights.

Institutional Capital Is Expanding, but Underwriting Must Remain Local

The national IOS market is estimated at approximately $275 billion, with as much as $220 billion considered institutionally investable. Institutional capital represented an estimated 45% of IOS investment in 2026, up from approximately 30% four years earlier, while reported 2025 investment activity totaled approximately $14 billion to $16 billion.

Demand remains diversified across trucking, construction, utilities, equipment rental, building materials, logistics, and fleet operations. Data center development also emerged as a meaningful source of incremental demand in 2026, helping offset softness in portions of the trucking sector. Nevertheless, IOS remains less transparent than traditional industrial real estate, and lease structures, site quality, zoning classifications, and entitlement protections vary substantially among jurisdictions.

The Outlook Favors Properly Entitled Sites, Not IOS Land Indiscriminately

IOS fundamentals remain supported by scarce supply, essential tenant uses, and growing institutional acceptance. However, the sector’s performance should not lead market participants to treat all outdoor-storage properties as equivalent.

For valuation and underwriting purposes, the strength of the IOS right may influence achievable lease terms, tenant investment, renewal probability, financing availability, terminal assumptions, capitalization rates, and value per usable acre. Market participants should monitor zoning compliance, entitlement expiration, transferability, abandonment provisions, redevelopment pressure, and changes in local land-use policy.

KEY MARKET TAKEAWAY:

For Industrial Outdoor Storage (IOS), the core asset is not merely the land, but the land combined with a lasting and transferable legal right to use it for outdoor storage.

Record-Low Vacancy and Heavy Preleasing Leave Little Capacity for New Demand

The U.S. data center market entered 2026 with exceptionally strong operating fundamentals as artificial intelligence, cloud computing, and increasingly data-intensive applications accelerated demand for capacity. Vacancy across primary North American markets fell to a record-low 1.4% at year-end 2025, while net absorption reached approximately 2,498 megawatts, surpassing the previous record of 1,810 megawatts established in 2024. Available capacity remained limited across most major markets, with vacancy below 2.5% in Northern Virginia, Atlanta, Dallas-Fort Worth, Chicago, Phoenix, and Hillsboro.

Supply under construction is also being committed well before completion. CBRE expects the preleasing rate for U.S. data centers under construction to reach approximately 80% during 2026, materially above the historical range of 40% to 50%. For investors and lenders, this preleasing provides meaningful income visibility, although lease security remains dependent on tenant credit, timely power delivery, and completion of increasingly complex facilities.

AI Capital Spending Is Creating an Infrastructure Investment Supercycle

The scale of capital flowing into AI-related data center real estate represents a fundamental change for the sector. Estimated AI-related data center real estate spending by major technology companies, including Google, Meta, Apple, Amazon, Oracle, and Microsoft, increased from approximately $250 billion in 2024 to $448 billion in 2025. The reported annualized pace for 2026 approaches $750 billion, excluding servers and other computing equipment.

These expenditures are supporting hyperscale campuses, powered shells, utility infrastructure, land acquisitions, and specialized facilities capable of hosting high-density computing. JLL estimates that global data center capacity could nearly double between 2025 and 2030, reaching approximately 200 gigawatts. Accommodating that growth may create roughly $1.2 trillion in real estate asset value and require approximately $870 billion in new debt financing. When tenant expenditures for GPUs and networking infrastructure are included, total data center-related investment through 2030 could approach $3 trillion.

The magnitude of these commitments is expanding opportunities for developers and capital providers, but it also raises underwriting concerns. Projects are larger, more technically sophisticated, and more dependent on a relatively concentrated group of tenants. Investors must evaluate whether proposed capacity is supported by enforceable leases, creditworthy occupants, deliverable power, and realistic construction schedules.

Colocation Demand Extends Strength Beyond Hyperscale and AI

Although hyperscale and AI deployments are driving much of the sector’s growth, demand for colocation space also remains exceptionally strong. Many enterprises continue to require hybrid-cloud connectivity, disaster-recovery capacity, network interconnection, and smaller-scale deployments that do not warrant dedicated hyperscale facilities. As a result, colocation vacancy remains near historic lows in major North American markets, broadening the demand base beyond the largest technology users. This distinction is important for property performance and valuation. A diversified colocation facility may serve many users with different deployment schedules and infrastructure needs, reducing reliance on a single hyperscale lease while creating more operational complexity. In supply-constrained markets, well-connected colocation assets should continue to benefit from limited availability, particularly where they can offer dependable power and access to dense network ecosystems.

Legacy Enterprise Facilities Face Uneven Obsolescence Risk

Traditional enterprise-owned data centers face a different outlook. Many corporations are migrating workloads to public-cloud platforms, colocation providers, and managed hosting environments to reduce capital expenditures and improve operating flexibility. This shift is weakening long-term demand for some older, single-user facilities and increasing functional-obsolescence risk, even as the broader data center market remains supply constrained.

Building age alone, however, does not determine competitiveness. Older facilities with strong fiber connectivity, network density, expandable power infrastructure, and practical upgrade potential can continue to attract users and investors. Conversely, properties with limited power availability, outdated building systems, or weak network ecosystems may struggle to compete. Some older facilities are being repositioned as colocation centers, edge data centers, or specialized digital-infrastructure assets. Successful conversions depend on whether the existing site and improvements can economically support modern power density, redundancy, connectivity, security, and operating requirements.

Power Availability Will Increasingly Separate Viable Sites from Speculative Ones

Despite strong demand, the amount of capacity under construction in primary markets declined from approximately 6,350 megawatts in 2024 to 5,994 megawatts at year-end 2025. The decline did not reflect weakening tenant demand. Instead, permitting delays, zoning obstacles, equipment lead times, and limited power availability prevented many proposed projects from advancing. Grid connection timelines now exceed four years in some primary markets, and available utility capacity is largely committed through 2030.

These constraints are shifting value toward sites with near-term power access and credible development pathways. They are also encouraging natural-gas generation, battery storage, renewable energy, and “bring your own power” strategies. For valuation purposes, land should not be underwritten as data center land solely because it is properly zoned or located near fiber. Its premium depends on the timing, quantity, reliability, and cost of deliverable power, as well as the property’s connectivity and realistic upgrade or development potential.

KEY MARKET TAKEAWAYS:

Data center fundamentals are likely to remain favorable as AI inference, cloud migration, digital services, and sustained colocation requirements support continued demand. Limited vacancy and heavy preleasing should reinforce rental income and development interest, particularly for facilities offering large, contiguous blocks of power or strong network connectivity. Many enterprises continue to require hybrid-cloud connectivity, disaster-recovery capacity, network interconnection, and smaller-scale deployments. As a result, colocation vacancy remains near historic lows in major North American markets. The outlook is less uniform for legacy enterprise facilities, with some exceptions, and largely dependent upon redevelopment potential.

Downtown Vacancy Remains Exceptionally High, but Deterioration Is Slowing

The Denver CBD office market remains one of the most distressed major downtown office districts in the country, although recent leasing indicators suggest that conditions are beginning to stabilize. Vacancy varies by provider and geographic definition. CBRE reported 38.6% total vacancy for Downtown Denver in the second quarter of 2026, while CoStar reported 32.3% for the traditional CBD, 24.3% for LoDo, and 24.1% for Platte River as of September 2026. Accordingly, Denver’s CBD can reasonably be described as having one of the highest, and by some measures the highest, office vacancy rates among major U.S. downtown markets.

The distinction is important because “CBD,” “Downtown,” and the broader central office market are not defined consistently. Combining the three CoStar submarkets identified as CBD, LoDo, and Platte River produces approximately 44.7 million SF of inventory and an aggregated vacancy rate near 29.4%. The combined market recorded roughly flat absorption over the past year, with positive demand in Platte River largely offsetting losses in the CBD and LoDo. That result is weak in absolute terms, but it represents an improvement from the more severe occupancy contraction experienced earlier in the office downturn.

Flight to Quality Is Redistributing Demand Rather Than Expanding It

Tenant activity remains highly selective. Government agencies, law firms, professional-service companies, and energy users have completed notable downtown transactions, while newer and highly amenitized properties continue capturing a disproportionate share of leasing. Tenants increasingly favor walkability, transit access, ready-to-occupy suites, modern building systems, and financially capable ownership that can fund substantial improvements and concessions.

This activity should not be confused with a broad-based expansion in office demand. Much of the leasing represents relocations, consolidations, and upgrades from less competitive buildings. Platte River recorded approximately 112,000 SF of positive annual absorption, while LoDo posted negative absorption of about 36,800 SF and the traditional CBD posted negative absorption of approximately 67,300 SF. The result is an increasingly bifurcated market in which successful properties can gain tenants even while overall downtown occupancy remains largely unchanged.

Stable Asking Rents Conceal Aggressive Concessions and Lower Effective Income

Asking rents have remained surprisingly stable given the depth of the vacancy problem. Reported annual rent growth was approximately 0.3% in each of the three central submarkets. Asking rents averaged $36.38/SF in the traditional CBD, $40.58/SF in LoDo, and $45.14/SF in Platte River. The higher Platte River rent reflects its concentration of newer, amenitized inventory rather than stronger overall occupancy.

Effective rental economics remain under pressure. CBD landlords are using free rent, large tenant-improvement allowances, turnkey suites, and other incentives to compete for a limited tenant pool. Approximately 600,000 SF of CBD sublease space remains available, with sublease offerings marketed at roughly a $13/SF discount to direct space. For valuation purposes, stable face rents should not be interpreted as evidence of stable net operating income. Lease-up periods, concessions, capital expenditures, free rent, and tenant-credit risk remain central underwriting considerations.
 
The Construction Halt Helps, but Recovery Requires Less Obsolete Inventory

The near-total absence of construction is the clearest support for downtown’s long-term outlook. No office space is under construction in the traditional CBD or LoDo, and only 120,000 SF is underway in Platte River. The completion of 1900 Lawrence in 2024 and Steel House in 2025 effectively marked the end of the most recent central-area development cycle. With elevated vacancy, high construction costs, lender caution, and existing buildings trading below replacement cost, another speculative CBD tower appears unlikely in the foreseeable future.

However, the absence of new construction will not resolve the market’s structural imbalance by itself. A meaningful portion of downtown’s vacant inventory consists of older buildings that may no longer satisfy contemporary tenant requirements. CBRE has indicated that approximately 9% of downtown office inventory is being considered for conversion. If a meaningful share is removed from competitive inventory through conversion, demolition, adaptive reuse, or occupancy by nontraditional users, the effective supply-demand balance could improve considerably without requiring a return to pre-pandemic office utilization.

Distressed Sales Are Resetting Values and Reopening Price Discovery

Investment activity is returning, but at sharply reduced values. The traditional CBD recorded approximately $166 million in trailing 12-month sales volume, compared with only $15.3 million in LoDo and $34.9 million in Platte River. Recent CBD transactions illustrate the scale of the valuation reset: Denver Place sold for approximately $51/SF, City Center traded near $40/SF, and the Denver Energy Center towers sold for less than $10/SF. By contrast, newer Platte River properties continued to attract materially higher pricing, reinforcing the widening valuation gap between modern competitive assets and obsolete commodity buildings.

The Outlook Is Stabilization Through Repositioning, Not Rapid Occupancy Growth

Downtown Denver appears to be moving from accelerated contraction toward gradual stabilization. Slowing move-outs, selective leasing, no meaningful new construction, and increased investor interest at reset values are constructive signs. Nevertheless, vacancy remains too high to support a rapid recovery in effective rents or broad property appreciation.

The indicators to monitor are net absorption, sublease availability, conversion activity, tenant-improvement costs, lease commencements in recently completed buildings, and the performance gap between competitive and obsolete assets. For owners, lenders, and appraisers, the central question is increasingly not when all vacant space will be reoccupied, but how much of the current inventory remains economically viable as office space.

KEY MARKET TAKEAWAY:

Denver’s CBD office market is showing early signs of stabilization, but a durable recovery will likely require obsolete inventory to be converted or removed, not merely stronger leasing demand.