What developers Chris Carroll and Daniel Huml, managing partners of Magnetic Capital, want to achieve might be considered foolhardy in most parts of the country.
They plan to construct a 90,000-square-foot mixed-use building, primarily office, in a market struggling with a 23% office vacancy rate and no clear path to recovery. In downtown Denver, closer to a third of office space is sitting vacant, landlords are defaulting, and city planners are studying ways to convert huge office towers into apartments.
Magnetic Capital, however, should have no trouble finding tenants to fill the five-story building well ahead of its planned opening in late 2025. As with so much in real estate, it all comes down to location — the cross streets of Second and Adams in Cherry Creek.
The Cherry Creek “submarket” has an office vacancy rate closer to 8.5% with several office developments underway, not to mention retail and multi-family residential. It remains a rare bastion of vibrancy in a struggling commercial market.
“Cherry Creek is a bright point in commercial real estate nationally,” said Carroll, whose office overlooks the empty lot across the street that will host the new building. And the rise of Cherry Creek reflects a larger “flight to quality” at play in Colorado and other regions.
With high-end retail, numerous dining options, executive housing, premium hotels, and multi-family all attached to a robust business district, Cherry Creek represents a “super-unique” concentration that is hard to replicate, said Hilary Barnett, a senior director in Denver with JLL Capital Markets.
“New construction in Cherry Creek is 99% leased before it delivers,” Barnett said. “Cherry Creek has positioned itself as one of the top markets in the U.S.”
Cherry Creek has been long known for its concentration of financial service firms, especially money managers like Janus Capital and family offices, which are the investment arms of wealthy individuals. When it came to office offerings, the neighborhood was known for smaller boutique spaces, with the typical lease around 13,000 square feet, Barnett said.
The pandemic caused a shift to remote work, which has been hard to unwind. Employers don’t need as much space with fewer workers coming in five days a week. At the same time, if they want employees to show up more, they feel pressure to provide a more attractive work environment.
More employers are willing to trade quantity for quality and Cherry Creek is well-positioned for the exchange. Its smaller office sizes are more amenable to a wider array of companies than in the past. And the amenities of the surrounding neighborhood improve the odds that workers will want to come in, justifying the higher cost per square foot.
Cherry Creek is even landing some bigger players that wouldn’t have ever considered the area in the past. Antero Resources, a $7 billion-a-year oil and gas company, plans to relocate its headquarters from Union Station to a new 140,000-square-foot building at 201 Fillmore St. that Seattle-based Schnitzer West is developing.
Antero proved a trendsetter in 2012 with plans to relocate its headquarters to the Union Station neighborhood, pioneering a massive wave of redevelopment in that area and the larger Central Platte Valley.
Cherry Creek has about one-tenth of downtown’s office space, so it isn’t equipped to handle larger corporate headquarters. Antero likely represents a special case, but it is a testament to the district’s growing popularity.
“Anyone from out of state that wants to be in a high-end urban area is coming to Cherry Creek. And there is demand from the companies already in Cherry Creek. The organic growth is tremendous,” said Matt Joblon, founding partner and CEO of BMC Investments.
BMC has already invested $1 billion in the area. When it saw a shortage of hotel rooms, it built the Halycon and Clayton Place Hotel, which includes a private membership club. It has another $1 billion of investments in the works, including the redevelopment of Clayton Lane and a new sister development called Cherry Lane.
Blair Richardson, the CEO of Bow River Capital, is an example of Cherry Creek’s organic growth. He is investing in the 2nd & Adams project via a parcel he owns, Carroll said. Bow River plans to lease about a third of the space in the new building. And he isn’t the only longtimer helping to create additional space in a constricted district.
The Broe Group has called Cherry Creek home for five decades. It is where the company manages its numerous real estate, railroad, agriculture, infrastructure and other holdings, said Doug Wells, CEO of the Broe Real Estate Group.
But executives at Pat Broe’s family office didn’t have to look beyond their backyard to find one of the best investment opportunities out there, one they are putting $1 billion toward.
“I live about 10 blocks away, and can and do walk to work. It is truly a live, work, play environment,” Wells said.
Although he understood that Cherry Creek was Colorado’s premier business district, Wells admits being skeptical to hear it listed among the top five office submarkets in the country after the pandemic.
His skepticism changed when the company completed a 76,715-square-foot office building at 200 Clayton St. last year that was intended to serve primarily as a new headquarters.
“We had such great demand and reception on the market for 200 Clayton that we decided to pivot,” Wells said. Broe Real Estate leased out the entire building and is planning a much larger office building at 250 Clayton St. Part of that will serve as its headquarters.
Last summer the company spent $225 million to buy the Seasons of Cherry Creek, an older apartment complex with 587 units on 5.2 acres. Although developable land is scarce in the district, Wells said the company will renovate and upgrade rather than redevelop.
Four office buildings are currently under construction in Cherry Creek, and out of another 16 projects in the planning stages, seven involve office space, according to the 2023/2024 Development Report from the Cherry Creek Alliance.
The remainder of the projects are mostly residential with some retail, which Joblon argues is necessary if the district is to maintain its reputation for having high-quality living spaces near high-paying jobs.
About 400,000 square feet of office space is expected to be delivered near term with another 400,000 square feet in the planning stages, which translates into about 5,000 jobs, Joblon said. East West Partners’ redevelopment of the west side of the Cherry Creek Mall, called Cherry Creek West, should provide another 800,000 square feet of office space and support 5,000 more employees.
“There are 10,000 new employees coming to Cherry Creek and a lot of them are going to want to live here or close by,” he said.
Only 1,400 housing units are planned in the area, including 800 with Cherry Creek West. Joblon said some of his firm’s future investments will focus on filling that gap.
Why is Cherry Creek defying the odds?
Cherry Creek in 16 blocks contains about 3.5 million square feet of office space and 2.1 million of retail, including boutique retailers and one of the most successful malls in the country, which is a major attraction for the 14.2 million people who visit the area each year.
The 16th Mall is struggling, while the Cherry Creek Mall is thriving. Downtown office space is glutted and several buildings are in default, while tenants clamor to lease way before the ground even breaks on buildings in Cherry Creek.
Huml with Magnetic Capital said Denver represents a tale of two cities. One reason that Cherry Creek office space is in such high demand is that tenants downtown are looking to leave.
“The why is one simple reason and it is safety,” Joblon adds. “There is no crime here and there is no homelessness. You can’t sell anything unless people feel safe. Your safety is fully ensured in Cherry Creek.”
Nick LeMasters, president and CEO of Cherry Creek North and the Cherry Creek Alliance, however, argues that the success of Cherry Creek is better when the downtown area is thriving.
“We want very much for our Central Business District to come alive again to be restored to what it once was,” he said. The alliance’s job is to make sure Cherry Creek maintains an environment attractive to development and to office occupants.
Overshadowing the neighborhood’s rising popularity is a realization that a limited runway for redevelopment exists. Parking remains a problem and transit connections are limited.
While scarcity makes the area more attractive to investors, options and opportunities for adding space will eventually run out.
A hard line prevents commercial expansion into the residential neighborhood to the north, and University Boulevard with the Denver Country Club area beyond that represent a hard barrier to the west. Colorado Boulevard defines the boundary to the east. And while retail pads are being redeveloped on the west side of the Cherry Creek Mall, the mall itself is untouchable, said LeMasters, who managed the retail hub for 23 years in his prior job.
For decades, malls across the country have died a slow death, resulting in many of them being repurposed. Metro Denver has its long list of mall failures — Cinderella City, Villa Italia, Southglenn, Westminster, and Northglenn, Buckingham Square.
But don’t put the Cherry Creek Mall on that list. It remains a “fortress” mall, LeMasters said, yet another way the neighborhood is defying the odds.
