When you look at Downtown Denver, you’re looking at a skyline with more than 30 skyscrapers.
In less than three square miles, the downtown area has nearly 32 million square feet of commercial real estate. That’s nearly 12 Empire State Buildings’ worth of office space.
Kaiser Permanente and Wells Fargo have a presence. There are four professional sports teams, hundreds of restaurants (four of which have Michelin stars), and nearly three-quarters of a million people. It should be, and has been, a vibrant place.
But right now, more than a third of Denver’s downtown is sitting vacant. While that number is not as stark as downtown San Francisco, where the percentage of vacancy is closer to 35, it’s still higher than Manhattan’s 16%.
Despite its attractions and efforts, Denver is a textbook example of the struggle cities across the country are experiencing. Nationwide, there’s currently over $94 billion worth of commercial property classified as “distressed,” and 20% of all office space in the country is empty.
With landlords facing $1.5 trillion in debt coming due at the end of this year, commercial real estate markets are facing a reckoning. Brokers are bullish, citing the demand for high-end space, but that obscures the very real issues that owners and cities face when it comes to attracting people and businesses back to what was, for generations, their bustling hub.
A recent survey of over 700 companies from Resume Builder found that 9 in 10 working Americans are returning to the office this year, and yet more than a fifth of office space in Western metro hubs like Denver, Salt Lake City and Phoenix isn’t getting leased like it used to — and likely never will. That’s because a large percentage of office space — or “stock,” as those in the business refer to it — in downtowns across the country is not leasable in its current state due to its deteriorating condition and a lack of demand.
The pandemic, and the way it changed America’s work-life balance, left real estate owners with no capital and no need to maintain or update buildings.
Now, nearly five years later, a swath of the commercial real estate market needs to be renovated, converted for another use or demolished to build something new. Pile on months of high interest rates and dwindling access to loans, and cities are leaving behind (and losing money on) a lot of wasted space in city centers made to be filled to the brim.
Rise of exurbs
While the question of how to revive downtown hubs is in the air, businesses and workers are moving to “exurbs,” or the areas outside urban and suburban centers but within major metropolitan boundaries.
According to the latest census, exurbs are among the fastest-growing neighborhoods in America, with secondary, smaller downtown regions around cities like Phoenix and Salt Lake City attracting residents. These new “exurb” downtowns are growing, and actual city centers are struggling to attract post-pandemic tenants.
In 2023, more than half a million people moved out of major cities. This marked the first time in decades that counties with populations of 250,000 or less attracted the most new residents moving inside the country.
Since this is where the bulk of metro populations live now and development is cheaper, it’s in these neighborhoods where lenders see less risk in funding new builds. In other words, the business follows the people — it’s what real estate experts call a “flight to quality.”
It’s hard to blame businesses as they leave city centers and follow residents to the exurbs, but the long-term consequences don’t take too long to show up.
Importance of urban centers
According to Stijn Van Nieuwerburgh, a Columbia Business School real estate professor, real estate value drops and subsequent loan defaults affect banks that might have otherwise invested in redevelopment. With fewer office workers doing shopping nearby, local businesses lose a primary source of income.
This translates to fewer transactions for the city, which then loses the tax revenue necessary for the government to operate.
New York City’s comptroller published a report that forecast that in 2025 alone the city could lose over $300 million in tax revenue from commercial real estate’s depreciation. Van Nieuwerburgh described the situation as a “train wreck in slow motion.”
Urban centers have long been America’s primary economic drivers. According to the U.S. Conference of Mayors, metros account for over 90% of the U.S. economy.
And city centers are traditionally the economic drivers of cities. But that’s changing now.
“Downtowns are never going to go away,” says David Caputo, a data scientist at Moody’s, who focuses on commercial real estate in the West. “But I don’t think it will ever be the 100% center focus like it used to be.”
As cities across the country grapple with what to do to revive their shrinking city centers and make them valuable again — culturally and economically — intermountain metros are already taking action, and experiencing major growth.
Could they be the blueprint for saving America’s downtowns?
Cities in the West
“Downtowns are never going to go away. But I don’t think it will ever be like it used to be.”
As the United States expanded westward, settlements sprung up at natural crossroads, near waterways and mineral deposits. These towns eventually transformed into cities.
Some, like Denver, exploded seemingly overnight due to gold, while others experienced more deliberate planning and steady growth. Those first downtowns were simple, concentrated streets where you could get everything you needed: a loan, sundries, food and drink, entertainment, places to worship, a marriage certificate, a dentist, a new horse, you name it.
Centralized commerce was the most efficient means for the community’s various needs to be met. As populations grew, main streets branched out to several blocks, storefronts built second stories, and downtowns were born.
Fast-forward to the decades that brought skyscrapers, office jobs and the internet, and downtowns bustled into a new millennium. All that growth, however, came to a screeching halt in 2020.
Not a broker, lender, owner or anyone, really, was ready for the pandemic, leaving American downtowns as an approximation of the tumbleweed ghost towns of old pulp Westerns. But instead of just waiting to see how the story ends, some cities have used downturns as a chance to rebuild their downtowns into economic and cultural hubs for future generations.
Phoenix is one of these metros, well, phoenixes. Just a generation ago, the city’s downtown was what Phoenix’s own community alliance council described as full of “urban squalor and decay,” marked by “people fleeing to the suburbs,” with “no residential density or established art and culture presence,” no sports complexes “to support dining and nightlife,” and “no rail system.”
Since 2005, $8.3 billion in public and private money has been invested in downtown, creating a viable place for the 1,900 business establishments, more than 63,000 people who work there and the six million visitors who annually pass through its 1.7 square miles.
That initial investment seems to have paid off. The city is now listed as one of the top 10 fastest-growing in the country, and has an above-average city safety score, according to the Conventions Cities Index, and downtown Phoenix generates more than $21 billion each year. That’s an 11% increase in revenue from 2018.
When those billions are broken down, $10.1 billion can be directly attributed to visitors, events, construction, business, work and residential activity in the downtown Phoenix area. Now, over 3,000 residential units are under construction — with 2,000 more planned to be built this year.
With landlords facing $1.5 trillion in debt coming due at the end of this year, commercial real estate markets are facing a reckoning.
Other Western cities, like Las Vegas and Salt Lake City, have similarly taken their future into their own hands instead of relying on the market.
Since 2020, Las Vegas has invested an estimated $400 million in downtown revitalization projects. Karen Chapple, an urban studies researcher at the University of Toronto, found that Las Vegas had recovered quicker post-pandemic than most other cities in the country by measuring the resiliency of downtowns using cellphone location data.
The city’s downtown recovered to 103% of its pre-pandemic activity by November 2023. At the time, Chapple told the Las Vegas Review-Journal that growth could continue with “investment in transit and improving walkability, hosting events or short-term businesses in empty office space and increasing affordable housing stock.”
The research showed that multiple cities in the region — not just Las Vegas — had stronger returns to the downtown core than elsewhere in the country.
According to Chapple, the versatility of the people, the space and the jobs in the West are the very things that set these downtowns apart from coastal hubs. Other regions don’t have the same professional diversity.
“(They have) a lot of lawyers, accountants, management consulting firms and so forth,” she said. “Those are the folks who are working at home more than any others and that’s why the cities that overspecialized in professional jobs — San Francisco, Seattle, New York, Boston — they’re still suffering from that.”
Salt Lake City’s continued investing in its downtown includes raising its sales tax from 7.75 to 8.25%, which will raise an estimated $1.2 billion to fund its ongoing downtown revitalization project. The action Salt Lake City is taking to invest in diversifying its downtown is positioning the metro area to become one of “America’s next boomtowns,” according to reporting from Axios.
Already, this latest injection of capital seems to be having the trickle-down effect the government and investors are hoping for. Government officials expect the city center’s population to more than double this year, according to the University of Utah’s Kem C. Gardner Policy Institute.
Roman Belgado, a senior associate at commercial real estate and investment firm CBRE, is seeing most of his office’s leasing activity — 68.6% — in the downtown Salt Lake region. He’s bullish on companies and their returning to downtown.
“A lot of that vitalization or resurgence has been downtown,” he says. “A lot of our clients are downtown. We’re downtown.”
Boise’s success story
Instead of waiting to see how the story ends, some cities have used the downturn as a chance to rebuild their downtowns into economic and cultural hubs for future generations.
Last August, the mayors of Boise, Idaho, and Syracuse, New York, signed a proclamation declaring the two “sister cities” — even though they don’t share much resemblance right now.
Syracuse currently has one of the tightest rental markets in the country. There are massive retail buildings on the cusp of closure, and over 13.8% of its office stock is vacant, and that percentage is expected to rise.
Boise, however, had little trouble through the pandemic, nor the current commercial downturn, and is one of the fastest-growing cities in the country.
“We spend a lot of our day not debunking, but explaining the difference (between) Boise and what the other larger metro markets nationwide are experiencing,” says John Stevens, a partner at TOK Commercial in Boise.
Only 8.7% of Boise’s current downtown office stock is sitting vacant. Stevens chalks it up to a few factors — including Idaho’s lax COVID-19 restrictions and different tax structures — but mostly that it’s a livable city.
“If you go up and down the green belt on your bike or walking, you’re gonna see people fishing in the river,” Stevens says, pointing to the middle of downtown.
There’s a ski resort 18 miles away, nearly 4,000 new apartment units under construction and it doesn’t hurt that there is approximately $20 billion in development happening at a moment when developers in other cities are struggling to get a loan at all, let alone an affordable one.
All that to say, its downtown is also a “vibrant” place in the eyes of people who want to invest. That is, in part, because the entire city is geographically small, taking only 30 minutes to drive from one end to the other. People can live, recreate and work in a somewhat urban environment — there are skyscrapers, hospitals, stadiums, a university and the Capitol — with immediate access to a variety of green spaces and recreation.
It helps that Boise has seen the second highest percent increase in tech jobs of any city since the pandemic, and the average rent for a one-bedroom is $2,000 less than it is in San Francisco. The city offers a number of tax incentives for new businesses, too, like a 25% sales tax rebate and possible full exemptions.
All this makes Boise attractive to both workers and businesses. Its tangibles and intangibles line up more with the many exurban mini-downtowns of the West than with the more traditional, urban downtowns. This kind of city center fits the current needs of the commercial real estate market with room for development and enough people and businesses moving there to warrant investment.
As the commercial real estate market continues to get back up after the pandemic and workers return to the office, our city centers are at an inflection point. Will banks and owners sell at a loss? Should cities rezone spaces to mixed-use? Will we need to demolish deteriorating buildings and start over? Should we do nothing?
As the need and purpose of commercial real estate shifts, the subsequent effects of these decisions will show up in the storefronts of downtowns, the availability of housing and the financial bottom line. But perhaps most importantly, it will determine which cities people want to move to, and which cities people want to leave.
As cities like Salt Lake City, Phoenix and Boise stand out as fast-growing and profitable examples for cities across the country experiencing commercial real estate fallout, a new era of rethinking our economic, cultural and urban hubs is taking place. That’s what gives many hope that the “flight to quality” can be redirected back to city centers. According to Anthony Albanese, a senior vice president at CBRE’s Denver office, even exurbs “can only be so big.” Somewhere has “to make up that gap,” he says. “And the closest thing that could make up that gap is downtown.”
This story appears in the January/February 2025 issue of Deseret Magazine. Learn more about how to subscribe.