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Page 14 — Office Properties Quarterly — December 2017
Building Denver today and tomorrow.
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Market Trends
T he modern workplace is in a
state of flux. The status quo
of yesteryear – office suites
designed with cubicle and
private space – are rapidly
transforming into open, collabora-
tive environments. What is behind
this sea change? Tenants are driv-
ing this evolution with the goal of
attracting and retaining talent as
a top priority. The environment in
which people work is a huge factor
in their work enjoyment and conse-
quent employee retention.
Ranked first among the nation’s
most desirable places to live in a
recently released poll by the Pew
Research Center, Denver possesses
a hypercompetitive labor market,
with unemployment below 3 per-
cent for the last eight consecutive
months. In this competition for
talent, employers place a heavy
emphasis on millennials/Generation
Z, who make up approximately one-
quarter of the metro area’s current
population, and as much as half of
the total in-migration annually. This
influence has greatly contributed to
the workplace transformations on
interior design and space configura-
tion, as well as the current focus on
providing superior access and ame-
nities via location.
Tenants also are eager for open
and collaborative environments and
reducing real estate expenses, with
some tenants reducing occupancy
footprints by 10 to 30 percent, creat-
ing substantial savings in rent and
operating expenses. Added to this,
the creation of alternative work-
place environments increases pro-
ductivity and com-
munication, and
fosters accidental
collaboration (in
contrast to tradi-
tional intentional
collaboration),
allowing for new
insights and great-
er availability of
information, with-
out the limitations
of space configu-
rations or tradi-
tional work-group
assignments. This
new collaborative model can feel
disruptive, and, yet, can lead to
amazing innovations in products
and processes.
In Denver’s downtown submarket,
new and existing tenants are dis-
playing a healthy appetite for new
space, driving development, absorp-
tion and lease rate appreciation. As
of third quarter, the downtown sub-
market’s development pipeline had
reached 2.3 million square feet in 12
projects, with an aggregate average
of 56 percent preleasing. Downtown
also led the overall Denver office
market in absorption, recording
165,022 sf for the third quarter, and
year-to-date absorption of 504,288
sf.
Further, new Class AA deliveries
in the downtown submarket are
a driving force in propelling lease
rates in Class AA/A and Class B
properties to all-time highs of $39
per sf and $30.30 per sf, respec-
tively. Asking rates in some of the
newest, super premium buildings
have breached $50 per sf, a level
never seen in Denver. All this new
construction allows for greater
upgrades in overall office space and
access to ultra-modern materials
and finishes. Shrewd negotiators
will leverage the expense savings
of workplace densification to create
options for occupiers not available
in traditional office settings.
All of these positive factors and
rewards easily sell the concept to
tenants, many of whom are eager
to embrace these changes. How-
ever, there are challenges and some
associated costs or risks to imple-
menting an open workplace envi-
ronment, which need exploration.
The open workplace concept is
still in its infancy, although already
embraced by many firms. First,
while there is some data to deter-
mine the long-range effects of
open workplaces on productivity
and employee retention, it is not
complete and needs more analysis.
Second, most firms associated with
tenant improvements – real estate
consultants, architects and contrac-
tors – are still honing their exper-
tise in evolving workplace technolo-
gies. Third, there is a costly upfront
capital requirement. For a modern
workplace to work effectively, all
new furniture and technology is
required, at a significant cost. Savvy
market experts and strong negotia-
tors are needed to uncover possible
capital sources for these improve-
ments.
What may be the greatest con-
cern, especially as it relates to
employee retention, is how to
manage the change in a posi-
tive manner. The older workforce
views offices as a reward for hard
work and a step above a cubicle
and, most importantly, the older
workforce values their private
office space (whether a cubicle or
an office). Many employees are
resistant to the open concept and
believe it will hinder their produc-
tivity, rather than enhance it. The
most extreme office concept, with
open seating allowing each employ-
ee to choose a seat that works best
on a particular day, is especially
concerning to older workers who
spent their careers in mostly fixed
locations. This challenge must be
managed correctly and with sensi-
tivity in order to keep productivity
and morale high, and attrition low.
While creative tenants and tech-
nology firms have been quick to
embrace the new open workplace,
some “old guard” tenants have not.
Law and energy firms have been the
slowest to adapt to new workplaces,
perhaps because these industries
are still very paper heavy. There is a
big push in our culture to go “paper-
less,” and the evolved workplace
is geared for a relatively paperless
environment, and yet this may not
be the right fit for every tenant.
Workplace solutions are here to
stay, despite the concerns listed
above, because the potential upside
is so powerful and cost effective.
The way people work has advanced,
our work environments have rap-
idly evolved to match and densifica-
tion is here to stay.s
Sam DePizzol
Executive
managing director,
Newmark Knight
Frank, Denver