CREJ

September 2020 — Office Properties Quarterly — Page 25 www.crej.com the year to $16.54 per sf market- wide. We expect these numbers to hold steady in the CBD and north I-25 submarkets and increase in the airport submarket, where DOD activ- ity is strong and vacancy rates are plummeting. There are significant new construction projects being planned and these projects should further bolster lease rates. n Absorption. Year-to-date absorp- tion was a positive 107,119 sf, as all three submarkets posted positive figures for the first half of the year, with the airport submarket posting the strongest numbers. While some softening could occur in the second half of the year, overall activity sug- gests it won’t be significant and any vacancy created should be fairly quickly leased. n Medical office market. The medi- cal office market has remained very strong through the first half of 2020. With the last speculative construc- tion being almost 12 years ago in 2008/2009, the existing MOB market has remained very tight with sub- 9% vacancy rates for the last several years. With the steady improvement in the market (prepandemic), we are seeing multiple projects that are ready to break ground on a specula- tive basis with 30% to 60% prelease requirements. Given the market demand, we expect many of these projects to do very well in their lease-up despite the fact that the costs likely will be 30% higher than current market. In addition to a vibrant leasing market, the appetite for quality medical investments has remained strong from both the medical real estate investment trusts as well as private capital investors, and we anticipate that to continue through- out 2020. During the second quarter, in the midst of the pandemic, MBRE purchased Union Medical Center (second-generation MOB space) for $225 per sf or $33.63 million. s Phaneuf Continued from Page 6 video chat, the fact remains that tech- nology has been a primary means to connect during this age of social distancing, which has rapidly accel- erated the rates of adoption across industries. Many companies are making neces- sary investments in technologies that promote collaboration and productiv- ity. While there are free tools available for limited operating budgets, some companies are making substantial investments, which they see as an investment in a new kind of work environment. Providing employees with the flexibility to work remotely long-term may translate into a small- er office footprint with fewer dedi- cated desks or workspaces in order to balance out operating costs. n Long-term considerations. The majority of our clients have been waiting to see what happens with the pandemic before making any long- term decisions regarding office space. In the interim, many are choosing to extend their current leases by nomi- nal amounts or going into subleases. Very few are scrapping the idea of the office altogether. On the contrary, some clients see the current market as an opportunity to secure more favorable lease terms. This might include shorter terms and additional concessions like free rent, increased tenant improvement dollars and supplemental allowances that tenants can use on items that typi- cally are out-of-pocket for them (i.e., moving costs). In other cases, long-term design plans have been postponed as compa- nies are hesitant to make a financial investment in drastically revising their carefully developed plans. When it does come time to rethink the office of the future – whether virtual, hybrid or traditional in-person – if this pan- demic has taught us anything it is that flexibility is key. In the months and years to come, a number of factors could affect the office market, and no one knows exactly what it will look like. But as companies continue to figure out the best way to maintain their teams, real estate will continue to play a vital role in that process. s Cullen Continued from Page 8 ments can come with the benefit of no building permits, which can stream- line processes and bring more small projects to completion faster. “This is a great time for collaboration between design teams and general contractors to accomplish small things that can make a significant difference in office buildings,” said Bill Brauer, general manager/owner at EJCM Com- mercial Construction Management. Brauer said that smaller-budget cosmetic work usually falls under two headings: maintenance and finishes, both critical to keeping office build- ings clean, sharp and safe. Those can include replacing carpet, floor tiles, walk-off mats and paint; adding art- work and plants; and improving sig- nage, especially vital given the rules and regulations for mitigating COVID- 19 exposure. “There is downward pressure on landlords right now,” he said. “There’s no question about that. Many build- ings are quiet, and that provides an ideal climate for getting things done during normal business hours. Labor can be more cost-effective without the need for crews to work premium hours.” Avoiding permits only makes this kind of work more advantageous for landlords willing to spend money on lower-ticket items while still bearing the significant costs of COVID-19 safe- ty measures. On balance, this appears to be the more prudent path, the sensible way for landlords to improve their buildings without breaking the bank. But not every owner is content with stopping there. Dallas-based Granite Properties with five Denver-area buildings in its portfolio recently launched “Inspire Wellness,” a $10 million initiative “to enhance the health and safety of its office buildings and new development projects in response to the pandemic,” according to the company’s website. That hefty price tag includes touch- less bathroom fixtures, self-cleaning skins on high-touch surfaces, beefed- up fresh air supply, elevator ionization, and state-of-the-art UV lighting in heating, ventilation and air-condi- tioning units, among other systems enhancements. Will other owners follow Granite’s lead? Almost certainly. But not all metro Denver office building land- lords have pockets that deep. And those that do might not be willing to make that kind of investment while the fate of COVID-19 hangs in the balance. s Jenkins Continued from Page 18 staff. Improving building operations requires a greater emphasis on robust cleaning programs, monitored indoor air quality, including temperature and carbon dioxide levels, superior air filtration with high-quality HVAC sys- tems and upgraded filters, increased building ventilation and fresh air pro- vision, and continuation of optimal water quality. From a hygiene per- spective, additional trash receptacles, hand sanitizer stations and disin- fectant wipes available throughout common areas, and new signage and graphics to cue and direct social dis- tancing have all become more preva- lent. Developers, owners and opera- tors also are exploring innovative technology including the integration of sensor technology, voice activated or app-directed building systems and touch-free elevator calling technol- ogy, bipolar ionization within HVAC systems, ultraviolet light applications in HVAC ducting and elsewhere, and the use of antimicrobial materials on high touch point surfaces to improve the building design and operation in response to COVID-19 concerns. Quality building design is funda- mentally tied together with opera- tions and should be a top point of discussion as we begin to operate in a post COVID-19 world. It has become our firm’s standard to develop sus- tainable, energy efficient and well- ventilated buildings that offer flexible spaces, such as column-free floor plans for optimal customization, and first-class amenities as tenants desire indoor/outdoor flexibility and access to light and air. Our ongoing devel- opments at Block 162 in Denver, 650 Main in Salt Lake City and CityPlace in Houston are examples of that for- ward thinking. Navigating the ever-changing obstacles related to COVID-19 and making long-term decisions regarding space planning, office (re)design and employee presence has proven to be a challenge to those confronted with those decisions. While we do not fore- see collaborative workspaces being replaced over the mid- to long-term, we may see a trend in design toward features like higher cubicle walls, wider hallways and high-tech, con- tactless technology, which includes touchless fixtures in restrooms, auto- matic door openers and hands-free ingress and egress at garage entry and exit points. Engaging and learning from tenants will help prioritize what matters most and influence future operational and design decisions. If the habits of today are adopted broadly for a prolonged period of time, it’s safe to say every aspect of commercial office real estate will be implicated. Convenience, comfort and confidence largely will shape employ- ee work habits and expectations. As industry leaders, we must continue to engage with our tenants, clients, owners and employees to respond to their priorities and needs, deliver and operate successful assets and steward our partners and tenants on assets well suited to safeguard their employ- ees and protect their financial invest- ments for decades to come. s Haltom Continued from Page 12 some employees coming in to the office and some remaining at home. Even if safety is solved, it’s best not to overwhelm the system, and many employers have found benefits from remote work that they want to carry forward. It’s the next task of technology, to be able to ensure a smooth workflow when some people are side by side in the conference room and others are viewing the screen at home. The first area for improvement is the video call. Personal computer technolo- gies like Zoom have surpassed most corporate IT, and most people can navigate their laptops better than they can facilitate an on-screen con- ference room meeting. Project sharing software also will be invaluable in the coming months and beyond. Adobe’s Creative Cloud or Apple’s iCloud will make it possible for files to move between at-home workers and in- person teams. It can, and should, be as simple as passing around a memo. When the 21st century office was sent back to the drawing board, a kind of evolution began. While these adaptations are spurred by the need to reduce virus transmission and maintain distance at all costs, the aim quickly will switch to revolve around the elevation of the in-person office experience. In short, the post- COVID office will never be the same. But with patience, and creativity, it should be a whole lot better. s Jaffer Continued from Page 14 cerns and meet their needs. During March and April, while our custom- ers worked from home, the Granite Property Experience team began preparing our buildings with safety precautions and signage advising customers of new protocols. We go beyond Centers for Dis- ease Control and Prevention safety protocols to keep our spaces clean, safe and ready for our customers to flourish. Combined with CDC and ASHRAE guidelines, the comprehen- sive approach places the well-being of our customers at the heart of each building and provides a safer and healthier environment for the present and the future. s Lawrence Continued from Page 12