Denver’s office market continues to display signs of recovery, with noticeable improvements both quarter-over-quarter and year-over-year. Citywide, rental rates are rising while inventory continues to decrease, with four of Denver’s six submarkets having recorded lower vacancy rates compared to both last quarter and the same time last year.
Denver continues to show signs of recovery, holding its position as the fifth most preferred market in the U.S. for real estate development. Vacancy rates in the Denver Metro Area are decreasing, with each of our submarkets outside of Downtown Denver (West, Northwest, Glendale, Cherry Creek, and Denver Tech Center) exhibiting lower vacancy rates compared to the first quarter of 2022.
Each year, Denver Business Journal’s Small Business Awards honors excellence and resilience among small businesses, highlighting their contributions to metro Denver’s community.
As companies navigate their long-term workplace strategies, one thing remains clear: hybrid work environments are here to stay. What remains unclear for many companies, however, is how to navigate the return to office and what the new normal for in-person work looks like.
Knowing that each company’s strategy will uniquely reflect the interests of its business and employees, we’ve broken down trends and best practices to help guide companies returning to the office.
As we enter our third year of the COVID-19 pandemic, the Denver office market is beginning to look more familiar to those of us who have been here awhile – even if we are far from the boom we were experiencing prior to the pandemic. Leasing activity picked up considerably in the latter half of 2021 as vaccination rates increased and companies expressed higher confidence in returning to the office. With little to no signs of that changing as we enter a new year, it’s still very much a tenant’s market.
While current leasing activity within Denver’s office market is still dominated by short-term leases, co-working spaces and downsized office spaces, we’re seeing companies starting to evaluate more long-term strategies. Taking into account market uncertainty, high construction costs, and the growth of hybrid work environments, many companies are thinking about their real estate and its impact on their operations in new ways that allow for continued growth.
Metro Denver’s commercial real estate market is showing signs of a return to normal following a rocky few quarters caused by the COVID-19 pandemic. There’s no question that there are still challenges to overcome as the marketplace tries to right itself after an unprecedented shock, but a few glimmers of hope for the office market popped up in the third quarter of 2021.
Perhaps the most encouraging statistic from the most recent quarter is the positive net absorption of office space, the first time this figure has ventured into positive territory since 2019. In the third quarter of 2021, the office market experience positive net absorption of nearly 240,000 square feet, including both direct and subleasing.
This figure marks a shift back to more normal leasing activity in the office market, coupled with fewer companies leaving their office space. Companies leased more than 2.3 million square feet of office space in metro Denver in the third quarter, an increase of 43% over the third quarter of 2020, when leasing activity was largely stifled by COVID-19.
Economic activity has crept back in metro Denver with the proliferation of COVID-19 vaccines, and offices are slowly reopening. This bodes well for the office market, where confidence was shaken when huge swaths of office workers were sent home to work for more than a year.
But there’s a long road back to where we left off in 2019. Before the pandemic, the metro Denver office market was cooking, with average rents approaching $30 per square foot, new product under construction and vacancy rates holding steady at sub-10%, even with new buildings coming online.
Now, the total vacancy rate is 14.3%, up 4.4% from its pre-pandemic position. The amount of space under construction has halved, although a big reason for that is the delivery of major office buildings like Block 162 earlier this year, which added more than 600,000 square feet of office space to the downtown market. Historically, buildings like that don’t come around in Denver very often, so it’s not out of the ordinary for many years to lapse between the construction of a major new downtown office building.
Direct gross office rents have held steady on average, ticking up by almost $1 to $29.60 per square foot year-over-year. Rents for sublease space, on the other hand, reflect the rush of sublease space that hit the market during the pandemic, dropping more than $2 to $24.08 per square foot on a gross basis.
Many companies placed their space on the sublease market throughout 2020, with the total vacant sublet space more than doubling over the course of the year to 2.4 million square feet. Today, there are more than 3 million square feet of vacant office space available for sublease.
What all this means for office tenants is that now is the time to act. Right now, owners are more open to negotiating various concessions like tenant improvement dollars, shorter term leases or discounted rental rates. Using a trusted brokerage like Tributary can help you secure these concessions and more when making your next real estate decision.
The last eighteen months have taught us a lot, but there are two lessons which have really resonated with us at Tributary: health is vital and so are the people you surround yourself with.
Not only does a healthy work environment lead to fewer sick days, but it will likely increase the success of your company overall. In fact, a study published by the Behavioral Science and Policy Association showed that employees were 50 percent more likely to experience health problems in an uneasy or stressful work environment. On the other end, a study conducted by NCBI showed that when employees have a sense of social support, appreciation, and a positive work environment, they perform better.
So, how can you build and maintain a strong and healthy company culture? Here are a few ways Team Tributary has found success in building an environment where people can thrive:
Implement a rhythm of play: Appreciating your teammates as people – and not just office mates – completely changes the workplace dynamic: projects flow seamlessly, collaboration is a natural effect and creativity runs high. Encourage your company to implement regularly scheduled activities, from happy hours and annual workplace parties to offsite team-building activities and retreats. Earlier this year, we went on a company retreat to Steamboat Lake. Disconnecting from our phones for a minute and connecting outside of the office refreshed and strengthened our outlook as a team.
Live out your core values: Core company values are the foundation upon which your business grows and succeeds. They also provide a valuable connection point for everyone on the team. Once your team owns those values and feels empowered by them, a strong company culture naturally follows. At Tributary, we believe in showing up, advocating always, doing the right thing, putting team above self, and giving back. These are what guide not only how we interact with our clients, but also with each other.
Staying connected (even virtually): While we believe nothing can quite replace in-person working relationships, many of our clients are choosing to implement work-from-home and hybrid working models during this most recent wave of the pandemic. In this setting, it’s more important than ever to find ways to feel connected online. Establishing that cameras need to be on during meetings is a simple way to make virtual meetings more personal, encouraging everyone to be present and engaged without distractions. Virtual team bonding activities can feel more physical by assigning breakout rooms where you have opportunity to chat privately with co-workers. Outside of meetings, regularly checking in with your team via text and phone calls will go a long way in helping them feel supported and appreciated.
According to TeamStage, 94% of entrepreneurs and 88% of job seekers say that healthy work culture is vital for success. Building and maintaining a strong and healthy work environment is critical, not only for the health and wellness of your team, but for employee loyalty and retention. When you build a thriving environment on meaningful core values, you also build boundless potential for success.
Before COVID-19 turned typical office life on its head, coworking was already amid an enormous boom that saw millions of square feet of office space leased to coworking providers in the hearts of the biggest cities in the world, Denver included. This boom ran into a roadblock in the form of stay-at-home orders and social distancing, neither of which lent themselves to working everyday side-by-side with near-strangers.
But as we work to emerge from COVID, what was once a niche movement within office real estate is poised to evolve into a model perfectly positioned to accommodate the way some companies want to do business.
As companies shift to hybrid and remote work routines, they’re increasingly incorporating coworking environments into their real estate plans for employees working in different cities or countries. In Denver, coworking spaces are popular among the many tech companies that have chosen to expand or relocate here in recent years, providing a flexible space for them to use as a home base while they finalize their local headcounts and determine their office space needs.
After experiencing COVID-related hiccups in 2020, Denver-area coworking spaces are benefiting from groups of people who haven’t yet made it back to the office – or whose companies have decided to be fully remote – but who are tired of working from home, searching for a change of scenery or looking for connection with the world outside their houses or apartments.
Circumstances have proven that many people can successfully work remotely, and they’re likely to demand this continued flexibility going forward, meaning that splitting time between home and office will become more common, according to CNBC.
But especially after the last year and a half, people want a place to connect and find community. Coworking spaces, usually specifically designed to facilitate spontaneous interactions and community gatherings, are the perfect place to find that.
A study done by the Harvard Business Review found that people who use coworking spaces reported that they find their work more meaningful, have more interactions with people outside of their industry and have more control over their work environment than people in traditional offices.
Coworking operators come in all shapes and sizes, ranging from the mom-and-pop local operators to massive international companies such as International Workplace Group (Regus) and WeWork.
Culture and target tenants other interesting differentiators between the various operators. Tech-focused coworking operators such as Galvanize offer a variety of events focused on mentoring technology startup founders as well as partnerships with software and financing providers to spur growth.
One of the most unique new coworking facilities is Tradecraft Industries in north Denver. It focuses on attracting contractors, tradespeople, and others that specialize in the built environment with shipping container-style offices in a renovated industrial warehouse.
While coworking space provides a much more flexible option for companies facing growth, tenants certainly pay their fair share to be nimble. Coworking cost is quoted in a “per desk” format which is usually two to three times more expensive than the “per square foot” rates of traditional office space. Accordingly, prices can become prohibitive as companies scale to more than 12 employees, so it’s important to keep in mind deal structure and the size of your staff if you’re considering coworking.
Use of co-working spaces has increased exponentially in the last decade, and with the ongoing movement toward hybrid work, coworking spaces offer a new flexibility to businesses as they seek to determine what normal looks like now. As business owners seek to transition to the next phase of office life, there are many factors to consider to decide the best course of action.
If you’re considering adding a coworking option to your real estate strategy, or just need guidance on your back to the office plan, our experienced brokers at Tributary are here to help.
The greater economy is clearly on the rebound after more than a year of holding its breath in anticipation of how long the COVID-19 pandemic would last and how severe its impacts would be. And while there are good signs ahead as we get back to business, the commercial real estate market in metro Denver began to show more signs of strain in the second quarter of 2021 – which could put tenants in a better position to secure office space at a more favorable rate.
Getting back to the office is the talk of the business world these days, as company leaders and employees consider their plans for returning to a semi-normal state of work. It’s the moment many of us have been waiting for, a signal that the COVID-19 pandemic has loosened its grip on our daily lives after more than a year of working from home for most office workers.
But going back to the office isn’t as simple as it sounds. The notion of returning is vastly more complicated than just telling employees to be at their desks at 9 a.m. Monday morning.
First, company leaders need to determine if and how they want to bring their staffs back to the office. Some employees, particularly those who do more individual tasks or have introverted personalities, have thrived while working from home, while others miss the camaraderie and collaboration of the office. Managers have noted how much more difficult it is to keep track of their teams while working remotely, while people of all ranks can agree that the flexibility brought by remote work smooths out other parts of life.
That’s why so many businesses are thinking about hybrid work, which combines remote and in-office work, to allow employees to experience the best of both worlds. Hybrid work is a growing trend for a reason; it makes a lot of sense for some companies, but it also necessitates investment, strategy and careful coordination. It’s the kind of thing that should be closely inspected and discussed with experienced professionals.
The same goes for transitioning to co-working, another option some companies are considering as they anticipate changes in their workforce or office strategy in the coming months and want flexibility to change directions quickly.
And while some companies will be able to go back to their pre-COVID offices, others will need to move to a new space to accommodate changes or will want to seek to capitalize on a market that is more tenant-friendly than we’ve seen in metro Denver in some time.
Once your company has decided on a plan, there are safety measures to consider. Company leaders are responsible for keeping employees healthy, safe and comfortable at work and will need to put serious thought into how to achieve this goal, whether it means encouraging social distancing, improving air filtration or ensuring that surfaces are routinely sanitized.
We at Tributary know this is a confusing time with a lot of unanswered questions, but we’re here to help you find answers, beginning with our Return to Office hub, a handy online guide with all the resources business leaders need to get started.
