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Page 8 — Office Properties Quarterly — December 2017
Market Update
D enver’s embrace of the co-
working movement is prov-
ing to be beneficial for users
and the city’s commercial
real estate industry as a
whole. The concept of co-working
space has taken off in the Mile High
City in recent years, providing an
environment for a unique niche
of users to easily enter the mar-
ket, thrive and, ultimately, expand
into the traditional office model.
Although the rise of co-working
space in Denver has had a positive
impact, it certainly isn’t without its
growing pains.
Just as Uber disrupted the taxi
industry and Airbnb disrupted the
hotel industry, the commercial real
estate sector now has to grapple
with changes of its own as the U.S.
workplace evolves. Technology has
connected and mobilized more
people than ever, accelerating the
rise of freelancers, independent
contractors and remote workers.
As millennials enter the workforce
and demographics shift, changes
in office tenants’ requirements
become more pronounced every
year. Environmentally friendly,
open-plan spaces in amenity-rich
buildings are becoming more of an
expectation than a luxury. But to
the millennial generation, how they
work is just as important as where
they work. According to the U.S.
Census Bureau, there are 83.1 mil-
lion millennials, making them the
largest living generation of Ameri-
cans. By 2020, this generation alone
is projected to make up half of the
U.S. workforce.
At face value, co-working spaces
offer people a place to conduct
business. How-
ever, this descrip-
tion does not
fully capture why
co-working has
become so popu-
lar. The intangible
benefits of co-
working space are
the reasons why
workers (particu-
larly millennials)
continue to sign
up in large num-
bers, even when
working from home could make
more economic sense. Co-working
has achieved a high level of popu-
larity because it creates a sense of
community, a strong culture and
opportunities for serendipitous
interactions with like-minded pro-
fessionals.
Although some aspects of the
co-working community may seem
trendy, the rise of this practice rep-
resents a fundamental change in
the workplace.
From a cost-savings perspective,
co-working space really began to
gain momentum during the Great
Recession in 2008, when occupier
appetite for flexibility increased
dramatically. In a tough economy,
small businesses preferred flexible
daily or monthly leases compared
with fixed commercial leases. From
2009 to 2012, there was intense
scrutiny on cost-cutting and
employee-footprint reduction.
Even though the financial crisis is
behind us and Denver has enjoyed
years of incredible economic expan-
sion since then, companies have
remained cautious, preferring to
grow their office footprint in a more
methodical way. Reduced employee
footprints and shorter, more flex-
ible lease terms have become the
norm in the commercial real estate
world. At the same time, office ask-
ing rates in the Denver market have
skyrocketed with tenants leasing
high-end space to attract and retain
a talented workforce. With the war
for talent intensifying, it is espe-
cially important for companies to
understand the workplace needs of
their employees.
The co-working movement was
once confined to creative types and
independent workers. However, cor-
porations and smaller companies
alike are beginning to notice it and
have become more comfortable
with implementing certain aspects
in order to remain competitive in
recruiting talent. Some corpora-
tions, including a few Fortune 500
companies, are even leasing co-
working space for a portion of their
employees.
With the co-working concept
gaining popularity and acceptance
in mainstream America, it may
seem as though the model is on
track to overtake traditional com-
mercial real estate. We project that
this isn’t the case, and the co-work-
ing model instead will strengthen
the local commercial real estate
industry.
Independent and contract work-
ers, who are projected to make up
40 percent of the U.S. workforce by
2020, are returning to work in office
buildings whereas, in the past, they
were largely working from home.
Co-working companies are leas-
ing an increasing amount of office
space to keep up with the strong
demand. Many freelance and inde-
pendent workers would not be in
an office environment at all if it
were not for shared spaces. Some
corporations are opting to bring the
co-working model home by turn-
ing excess space into shared space.
Office landlords are doing the same,
leading to increased occupancy in
their buildings.
Everyone benefits when business-
es grow quickly and intelligently.
When co-working facilitates growth
for new businesses, those busi-
nesses, in turn, bring vibrancy to
their cities and help grow the real
estate market. Co-working space
provides a place for small busi-
nesses or entrepreneurs to establish
themselves and, therefore, helps
them become more reliable ten-
ants should they move on to rent
more traditional office space. If a
company is growing a successful
business, it eventually will out-
grow co-working space. Markets
like Denver, which embraced the
co-working movement early, have
the most to gain. The Denver office
market totals more than 148 million
square feet of space. We estimate
that co-working space in Denver
totals nearly 1 million sf. Although
the local co-working footprint con-
tinues to grow rapidly, it still only
makes up roughly 0.7 percent of
Denver’s total office supply.
Therefore, co-working space in
Denver has had the benefit of offer-
ing a new and creative approach
to commercial real estate – while
remaining small enough to not dis-
rupt the traditional office model.s
we ex ist to bui ld a bet ter tomor row
|
Jeannie Tobin
Regional research
director, Avison
Young, Denver