"reduce to a lower rank or class," 1881, American English coinage from de- "down" + ending abstracted from promote. Said to have been in general use in the Midwest by 1893, but not in the East.
Regarding an antithesis to 'promote,' the word universally in use in Cambridge, in Harvard College, is drop. The same word is in use in the leading schools here (Boston). I hope I may be counted every time against such barbarisms as 'demote' and 'retromote.' [Edward Everett Hale, 1892, letter to the publishers of "Funk & Wagnalls' Standard Dictionary"]
Related: Demoted; demoting.