CREJ

A re office lease rates drop- ping? I get some version of this question every day, from clients and colleagues as well as from friends and family who generally have little interest in the commercial real estate market. It seems like it should be a given, right? Unemployment is sky high, the stock market is down, many companies have not returned to the workplace yet and may not do so for some time, and, to top it off, oil and gas companies are facing unprecedented headwinds. So, have office lease rates in Denver crashed as well? As it sits today, it’s not fair to say that the market is declining, rising or even staying steady – it’s only fair to say that the market has dis- appeared for the moment. The mar- ket is only as good as the latest trans- actions tell us it is, and right now the volume of office leases being signed in Denver is so low that defining the “market rate” is just not feasible. What transactions that are being consummated are mostly short-term extensions on existing leases. Landlords and tenants seem to be coming to the table so that both sides can have more time to make long-term leasing decisions. What does history tell us on this topic? You might be surprised at the amount of lag time between a stock market crash and the corre- sponding decline in Denver office rental rates. After the dot-com bust in 2001, office rates in Denver didn’t hit their low for 15 quarters, and they didn’t make a full recovery for over seven years. When the econ- omy crashed in 2008, rates did not hit their low for nine quarters and didn’t fully recover for five years. As of now, there just isn’t enough evidence to say how far rates have dropped or how far they will drop, but you’d be hard pressed to find someone in the industry who doesn’t see rates declining in the coming months. To give some per- Please see Page 22 June 2020 INSIDE Market update PAGE 4 Management tips PAGE 18 Workplace trends PAGE 13 An examination of the effects of COVID-19 and plunging oil prices on the office market There are benefits to maintaining building standards that help landlords and tenants Design and occupancy needs adjust as the world moves beyond the pandemic David Shirazi Vice president, tenant representation, JLL What will happen to office lease rates? The volume of office leases being signed in Denver is so low that judging the market it difficult. It’s not fair to say that the market is declining, rising or even staying steady – it’s only fair to say that the market has disappeared for the moment.