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.