In a year that has been anything but predictable, it’s safe to say we’ve all been navigating quite a lot. Companies across Colorado have had to face many difficult decisions, including what to do with their current office space. During Tributary’s recent “Denver Office Market Outlook” virtual panel moderated by Partner and Managing Broker Andy Cullen, local industry experts weighed in on the current state of the Denver office market and what’s next for the Mile High City. Below, you’ll find a full recording of the panel as well as some key takeaways. If you have any follow-up questions, please don’t hesitate to reach out to us directly.
Economic Impact of COVID-19 on Denver – Randy Thelen, Vice President of Economic Development, Downtown Denver Partnership
- Denver has consistently ranked as one of the best-positioned cities to recover from COVID-19 due to multiple pre-pandemic factors including a strong economy.
- Millennials are continuing to move to Denver at a high rate, even without jobs lined up.
- Large tech companies are continuing to locate to Denver where there is access to top young talent.
- One of the most recent companies to announce a move is Palantir, which is relocating to Denver from Silicon Valley.
- Other-high profile tech companies like Facebook, Amazon, Google and Snowflake also have offices in the Denver metro area.
- Restaurants and retail are feeling the impact the most:
- Downtown’s restaurants heavily rely on foot traffic from conventions, events, sports games and more. With many of these events already canceled well into 2021, it will be a challenge for restaurants to attract the same customer base to drive sales.
- Leaders are looking for ways to drive regional visitors back to the Downtown core with events such as a modified 9News Parade of Lights.
- Destinations like Larimer Square have helped their businesses adapt to the challenges of the pandemic by closing their streets to traffic and allowing restaurants to expand their patios to allow customers to safely dine outside.
How Denver Office Tenants are Shifting Their Mindset – Amy Aldridge, Partner, Tributary Real Estate
- Tenant perspectives continue to evolve week by week.
- Regardless of their circumstance, most companies are trying to reduce costs and operating expenses at some capacity.
- Many companies are either subleasing their space or looking for subleases while they wait to make a long-term decision on office space.
- With the expectation that by next July we will be in some type of new normal, tenants should plan ahead and take opportunities while market rates are low.
- Flexibility is key when it comes to rethinking the office of the future. Many offices are testing out a hybrid work environment where employees can choose whether they want to work virtually or in-person at the office.
- Companies in large high-rise buildings have been more hesitant to return to the office because of the number of touchpoints for employees between their homes and desks – including traveling in elevators and using common areas with other companies.
- With slowing activity in Downtown Denver, we are seeing more leasing activity in suburban submarkets. Low-rise buildings with large doors or operable windows are attractive workspaces right now.
Managing Office Decisions at a Culture-Driven Company – Todd Panella, Chief Operating Officer, Zivaro
- Our company has seen outstanding productivity with remote work that requires solo heads-down concentration. But we still need face-to-face interactions in order to build business partnerships and get our product out in the market.
- It is important for organizations to look past 2021. Now is the time to invest in a new space and continue building your culture so that you are in a good position when things are back to normal.
- Being remote for so long has reinforced the need for in-person interaction with coworkers and employees.
- Many companies are exploring a “free address” workspace, which are spaces without assigned seating. With fewer desks than total employees, this approach helps companies keep a smaller footprint and cut down on unused space.
Supporting Tenants While Fulfilling Obligations to Investors and Lenders – Jon Buerge, Chief Development Officer, Urban Villages
- There is a great need for adaptability during these uncertain times.
- Not typically a fast-moving industry, real estate companies have had to quickly make decisions to navigate the challenges of the pandemic. We can no longer lean on the best practices of 2019.
- COVID-19 has been an accelerator of change, and you see that no more clearly than with retail. We are seeing a wave of entrepreneurs test out new concepts that they wouldn’t normally be able to do. For example, Larimer Square has signed nine short-term leases to small businesses.
- Flexibility of lease terms is a pivotal way to help struggling tenants.
- Right now, tenants are typically not willing to sign long-term leases as there is still uncertainty as to how the pandemic will play out.
- When managing tenant lease terms, a blanket policy won’t work. It is important to fully understand the fundamentals of each tenant’s business so that you can create a customized, individualized strategy to provide the best help and assistance.
- The importance of partnerships.
- Keep close contact with tenants, lenders and investors right now – these partners need to be a large part of the dialogue when it comes to decision-making.
- Developers are seeing a lot of inside flexibility from lenders and investors. Don’t be afraid to ask for what you need.
How Landlords are Thinking About Office Space – Allison Berry, Vice President, CBRE
- While rental rates are remaining steady, landlords are open to additional tenant concessions like free rent and more TI dollars.
- Office tour activity has picked up over the past month in downtown Denver.
- Landlords are continuing to explore ways to incorporate more safety measures into their buildings, including increased air filtration, UV light sanitizers, increased janitorial staff and more.
- Landlords are taking advantage of lower construction costs to build out spec suites and undertake additional improvement projects in common areas.
- Tenants should not limit their decisions based solely on COVID. There’s more opportunity to negotiate favorable multi-year leases now than there will be once a vaccine is released.
- With more than 2 million square feet of sublease space available in Denver, there is increased competition for direct lease opportunities.
- As larger tech firms sign office leases in Denver, there is an increased interest from smaller tech companies who serve in adjacent support roles.
- Owners and landlords continue to look for the right ground-floor retail as an amenity for their office tenants.
Final Thoughts – Making Decisions Moving Forward:
- If your company is able to, now is the time to take advantage of the market. Once there is a vaccine, that opportunity will be lost as activity and rates pick back up.
- A company should not make a decision strictly based on COVID-19. You could be inhibiting your company’s future growth.
- Keep in mind that people still want to work in great workspaces. While we can get our work done at home for heads-down work, we are missing that human connection that comes with in-person collaboration.
- With challenges onboarding new employees and maintaining team culture virtually and the natural transition with leases, there will be a large pent up demand for office space in Denver by Q3 2021.
- Now is the time for entrepreneurship. Take advantage of the flexibility and unique leasing opportunities that are available in the market right now.