As we approach 2025, the commercial real estate landscape here in Denver is marked by both ongoing economic pressures and emerging opportunities. At Tributary Real Estate, we’re anticipating several key trends that will impact not only investors but also owner-users, tenants, and the broader industry in the coming year. Below, we’ve highlighted the top five trends to look out for in 2025.

1. Increased Office Leasing Activity Without Significant Rent Reductions

Contrary to earlier predictions, office leasing activity has picked up in 2024, and we expect this trend to continue into 2025. While many anticipated that rental rates would further decrease to attract tenants in a persistently challenging market, we’re actually seeing the opposite. In fact, new owners are maintaining rental rates despite an overall soft market.

We’ve seen buildings hold firm on rental rates even after changing ownership, and some landlords have been bullish on their ability to attract larger tenants without significantly lowering rents. This optimism seems to be driven by the belief that interest rates will continue to decline and that there will be sustained demand for well-located office spaces. However, the risk is that these landlords may face higher vacancies if they do not adapt to changing market conditions.

2. The Flexible Workplace Evolution

The defining factor in 2025 will be how companies continue to navigate flexible and remote work policies. While the pandemic pushed many businesses to go fully remote, we’re now seeing a shift in the other direction. A notable example is Amazon, which recently announced a return to in-office work five days a week. Employers are increasingly exploring what in-office policies mean for their culture, productivity, and ability to attract and retain talent.

Feedback from tenants and employers indicates that while flexibility remains a priority, fewer companies are opting for fully remote work. Instead, they are embracing a model that balances in-office presence with the need for work-life flexibility. For instance, some companies are reevaluating remote hiring strategies as they discover that having distributed teams across multiple cities can dilute the cultural and collaborative benefits of being in an office. They might have a hybrid schedule but employ a largely local workforce.

We’re also seeing a reimagining of office space design. Companies experimenting with hybrid models often realize that they need more physical space than initially anticipated. For example, while many businesses initially thought they could downsize to half the space or move to a hoteling model, they’ve found a persistent desire for dedicated desk space in addition to collaborative areas. As a result, we’re seeing a resurgence of private offices, huddle rooms, and Zoom-ready spaces rather than fully open floor plans.

2025 promises to be an exciting and promising year for commercial real estate. The rise of owner-user purchases, the continued focus on downtown revitalization, and the increase in office leasing activity all point to a market that is evolving in new and unexpected ways. At Tributary, we’re closely monitoring these trends and are ready to help our clients navigate the opportunities and challenges ahead.

If you have questions about how these trends may impact your business or are considering purchasing or leasing commercial space, reach out to us. We’re here to guide you through every step of the process.

3. Construction Costs Stabilize as Inflation Cools

Construction costs continue to have a major influence on what’s possible in today’s commercial real estate landscape. According to industry feedback, including insights from Mortenson’s Non-Residential Construction Cost Index, material prices have started to level off, and as inflation pressures ease, we will continue to see greater stability in the cost of construction materials. While labor continues to be a major factor, any pricing relief is good news for developers and owner-users considering new construction or major renovations. We expect to see further leveling off into 2025, offering more predictability in budgeting for projects.

Moreover, as confidence in the broader economic outlook improves, we anticipate steady spending in non-residential construction. Interest rates may continue to see a gradual decline as inflation subsides, further fueling optimism for new construction starts in the year ahead.

4. The Continued Revitalization of Downtown Areas

Another key trend is the ongoing focus on revitalizing our urban core. Downtowns across the country are grappling with high vacancy rates, particularly in older high-rises, and Denver is no exception. While there has been significant attention on large-scale projects, the next phase of revitalization will require innovative public-private partnerships, as well as government support at both the city and state levels to find attractive, financially feasible ways to repurpose or reposition these buildings to meet modern tenant needs.

Despite the challenges, we still see demand from tenants who want to be in the heart of the city, and we’re optimistic about the future of downtown Denver. High-vacancy, Class B buildings will face the greatest difficulties, but there is potential for at least some of these assets to be transformed through recapitalization efforts, bringing new life to underutilized spaces.

5. Owner-User Building Purchases on the Rise

One of the most notable shifts we’re seeing is the increase in owner-user building purchases. Commercial properties are typically acquired by investors – whether intuitional or private equity – including a large share of out-of-state and international buyers. And while that is still the case, there has been a significant uptick in tenants seeking a space to not just occupy but own. With building devaluations and capital continuing to sit on the sidelines, more businesses, particularly long-term tenants, are exploring the option to purchase the properties they occupy.

This trend presents a unique opportunity for businesses to invest in their future by owning their space, especially as prices dip to more attainable levels. For companies with financial capacity, buying rather than leasing can provide long-term stability and the potential for significant appreciation as the market recovers.

But businesses must be prepared to take on the responsibilities of a landlord, from property management to asset maintenance. Managing capital reserves, repairs and tenant relations adds a layer of complexity, especially for companies focused on growing their core business. While this scenario offers potential financial upside, it also highlights the need for careful planning.

With persistent high interest rates and falling values in many urban commercial real estate asset types, the industry faces a major challenge in 2024 and years to come: a looming wall of hundreds of billions of dollars in loan maturities. This complex issue promises to have ripple effects far beyond the real estate industry and has the potential to impact the broader economy in a number of crucial ways.

The lack of robust capital markets transactions in the past twelve months in combination with lender flexibility in extending loan terms has culminated in a large concentration of modified loans – previously maturing in 2023, now set to mature in 2024 and beyond. Known as “extend and pretend,” this has pushed the amount of CRE mortgages maturing this year from $659 billion to $929 billion: a 40% increase.¹

As this wall of maturities comes due, we can expect refinancing in some cases, but we should also anticipate many assets going into default and, consequently, receivership. This specter not only looms large over property owners, but tenants can often find themselves caught in the crossfire. Understanding the intricacies and potential impacts of receivership is crucial for both landlords and tenants alike.

Understanding Default: The Unraveling Process

In commercial real estate, a loan default occurs when property owners fail to meet loan obligations, often after a great deal of lender flexibility and attempts to reconcile (no one really wants to be in this position – banks aren’t in the business of being landlords). A default can stem from various factors, such as economic downturns, mismanagement or unexpected market fluctuations. If a borrower does default, many lenders turn to receivership as a next step and alternative to costly foreclosure proceedings. A court-appointed, third-party receiver is brought in to navigate the loan terms in an effort to best conserve asset value on behalf of both the lender and borrower.

The default process timeline involves filing a legal dispute and seeking out a qualified receiver who is ultimately agreed upon and appointed through the court. The length of a receivership can range from months to years depending on the complexity and size of the real estate-backed loan portfolio being handled, but in most cases, the lender will delay the foreclosure date so the property or properties can be sold by the receiver. During this period, the building’s future becomes uncertain, which should prompt tenants to assess, understand and protect their own commitments.

Tenant Opportunities: Protecting Your Interests

So, if you learn your building is going into receivership, when’s the best time to engage with your landlord? The answer: as early as possible. Proactive communication is key. As a tenant, it is vital to understand your lease terms; however, if it has been a while, now is a good time to dig back in and ensure you understand your rights and obligations, including lease termination clauses, rent payment terms, and provisions regarding building maintenance and repairs. Lines of communication between tenants, the landlord and the appointed receiver are key. The stabilization phase of receivership may provide an opportunity to negotiate as a tenant. As your broker partner, we assist in evaluating the situation and often find an opportunity to reduce occupancy costs while helping the landlord/receiver stabilize the asset.

One essential component in safeguarding tenant interests, especially in this economic environment, is the Subordination Non-Disturbance Agreement (SNDA). This contract involving the tenant and lender ensures that, in the event of receivership or landlord default, tenants are protected from abrupt lease terminations. The SNDA acts as a safety net, preventing banks from rejecting leases without involving the landlord. Having an SNDA in place adds a layer of stability and security for tenants during uncertain times, allowing them to focus on their business operations without the fear of disruptions. An SNDA is not only meaningful for tenants but also benefits landlords, facilitating easier financing negotiations, and lenders, making their loans more secure.

Big Picture: What This Means for the Market

The coming wave of maturities coupled with the falling value of commercial office assets will result in a glut of receivership and landlord default that has far-reaching implications, affecting property values, taxes, commercial mortgage-backed securities and a whole host of other market tendrils. As the coming years unfold, they will bring both challenges, yes, but they will also create opportunities for those who are prepared.

As a result of the market dynamics, the majority of office market portfolio value has vastly diminished. Once a property is ready to be sold by the lender or receiver, it will be at a much lower basis because the equity from the previous owner is wiped out (typically 20-30% of the building’s value) allowing these assets to sell at a lower basis across the market.  We will begin to see the impacts as new low watermark prices dictate and rewrite the underlying value of these properties in everything from city budgets to pension fund values.

A property that is already operating as a sunk cost for a current owner is unlikely to be receiving any capital infusions or updates to amenities. This drop-off in investment in the actual spaces will begin to create an even bigger divide between the “haves” and “have-nots” for office tenants, driving demand further toward the well-positioned Class A spaces.

Though there will be considerable market pain associated with this point in time, we will start to see buildings, particularly Class B and C office, become more attractive investments for buyers with imagination. As the floor of property values lowers, savvy investors can transact at a lower cost, disrupting a market that has driven owners, financial institutions and others deep into the spreadsheet without a focus on the tangible value of properties.

Major market shakeups, while extraordinarily difficult for many, do act as a catalyst for innovation. Lower property costs will reengage some of the capital that has been sitting on the sidelines and free up more to be invested back in the repositioning and reimagining of buildings. The office market has been prompting a reevaluation of how space can be utilized and soon, the market will be dictating this evolution.

Regardless of what the next 12 months hold for the building in which your company holds a lease, by remaining informed, proactively engaging with your landlord and safeguarding your interests, you should see this time as an opportunity to leverage your real estate decisions to emerge in a better position for the future.

¹According to the Mortgage Bankers Association’s 2023 Commercial Real Estate Survey of Loan Maturity Volumes.

Colorado Hub for Health Impact, a new national economic development campaign elevating Colorado as America’s epicenter for life sciences innovation launches today. The campaign emphasizes Colorado’s leading innovation talent, central location, robust infrastructure, collaborative community, reasonable costs, and unmatched quality of life as key reasons why companies considering relocation or expansion should join the state’s health innovation ecosystem. Colorado’s thriving life sciences community is known for leading-edge research, development, and commercialization with a global patient impact.

A group of 22 partners representing Colorado’s life sciences companies, innovation centers, economic development groups, Front Range cities and counties, commercial real estate developers, builders, and contract development and manufacturing organizations created and funded the national economic development campaign.

“At the center of the country, and the intersection of innovation industries including life sciences, high technology, and quantum computing, Colorado and the Metro Denver region attract big thinkers and problem solvers. Whether they’re lifelong residents, graduates of our top-ranked universities, or newcomers here for opportunities and outdoors access, they share a commitment to saving and changing lives around the world. Metro Denver Economic Development Corporation is proud to support Colorado, the Hub for Health Impact,” said Raymond H. Gonzales, president, Metro Denver Economic Development Corporation.

Colorado Hub for Health Impact Campaign Partners Include:

The campaign is led by Colorado BioScience Association, Colorado Health & Tech Centers, Denver Metro Chamber of Commerce and Metro Denver Economic Development Corporation, Fitzsimons Innovation Community, and U.S. 36 Collaborative, as well as Aurora Economic Development Corporation and City of Aurora, BNBuilders, Longmont Economic Development Partnership, NexCore Science & Tech, Mortenson, Sterling Bay, and Sun Construction. The campaign is also partnering with AGC Biologics, Adams County, GE Johnson, KBI Biopharma, Murphy Company, Ridgeway Science + Technology, Saunders, and Tributary Real Estate.

Read the full Colorado Hub for Health Impact press release.

Tributary Real Estate (“Tributary”) announced the seven-year renewal of their office lease at 1416 Larimer Street on Larimer Square, solidifying their commitment to downtown Denver.

The historic character of both Tributary’s space and the surrounding block – characterized by brick and timber construction – as well as its central location and proximity to restaurants and walkable amenities played a significant role in Tributary’s choice to remain in this unique location.

“While our space itself on Larimer Square is a major reason we love coming into the office, this long-term renewal is really indicative of our commitment to Downtown Denver. No matter the market, we have always been proud to be an anchor of our downtown; and, as a local business and advisor to so many in this market, it’s not enough to simply talk to our clients about how vibrant our city can be, but to be an active champion for that vibrancy,” said Andy Cullen, partner and managing broker at Tributary.

In the post-pandemic office era, Tributary’s space will be renovated to accommodate smaller, enclosed spaces with quality technology to allow for virtual meetings, which are here to stay in this hybrid environment.

Asana Partners, owner of Larimer Square and one of the driving forces behind the area’s revitalization, commented on Tributary’s continued commitment to Larimer Square. “Tributary Real Estate plays a key role in Larimer Square’s future. As a local firm, they understand the special history of the block and have been a true advocate for a dynamic downtown core. We’re excited to continue partnering with them here,” said Morgan Sowell with Asana Partners.

In addition to Tributary’s own commitment to Downtown Denver, they have represented more than a dozen office tenants over the last year who relocated, renewed leases or expanded Downtown.