CREJ

Page 8 — Office Properties Quarterly — September 2020 www.crej.com W hile the pandemic has changed many aspects of our society in a short amount of time, the sub- stantial impact on the office market is among the most staggering for the commercial real estate industry. Within days of shel- ter-in-place orders, thousands of businesses around Colorado emp- tied out their offices and settled into a virtual workplace routine, many expecting to be back within a few weeks. Six months later, companies still are grappling with the new realities of virtual work arrangements and trying to navi- gate their office leases to accommo- date an unknown future. For the first time in 13 quarters, Denver’s office market registered negative net absorption in the sec- ond quarter. As many companies focused their attention (and their wallet) elsewhere, sublease avail- ability sharply increased by 33.3% to 3.4 million square feet in Denver. With total construction volume reaching 3.7 million sf, up 49.8% year over year, more office will be introduced in the near future, potentially creating a scenario in which supply significantly out- weighs demand – a reality that would have seemed unfathomable just six months ago. How companies will operate in a post-COVID-19 world still largely is unknown. However, given Denver’s continued popularity as a second- ary market, even throughout the pandemic, the impact on the office market here likely will be more nuanced than in places like San Francisco or even Austin, Texas. Den- ver didn’t even crack the top 20 U.S. markets that saw the biggest drop in demand in the second quarter. While virtual meetings, home offices and animal coworkers may temporarily remain the norm, it is clear the office – at least in this market – is not dead. In finding a path moving for- ward, there is not a one-size-fits all approach. A company’s plan for this next phase will vary depending on their needs. Strategies and consid- erations in the short term likely will include a combination of the follow- ing: n Re-evaluating office space needs. Denver office tenants still are explor- ing various measures to mitigate the financial effects of the pandemic. Regardless of their size or circum- stances, companies across the board are looking for ways to reduce costs, including subleasing their office space. If only 50% of an office space is being used on a given day, the goal then becomes determining how and where to space employees safely and how to sublease with the least disruption to operations. Dozens of companies are exploring this option. In downtown Denver alone, there are 17 active subleases that are 20,000 sf or larger. Five of those are larger than 50,000 sf. Companies in larger high-rise buildings have been more reluctant to come back to the office because of the number of potential touch- points for employees between their homes and desks – including com- mutes, traveling in elevators and using common areas. As a result, many of these companies are plan- ning to maintain a virtual office environment, or at least a hybrid model that allows small cohorts to work in person safely, for the fore- seeable future. n Investing in new collaborative technology. While many of our cli- ents anecdotally report employees are suffering from “Zoom fatigue,” or the exhaustion and stress felt when consistently connected on Market snapshot: Tenant considerations for office Andy Cullen Managing broker, Tributary Real Estate In the second quarter, Denver saw a 33.3% increase in subleases, totaling 3.4 million square feet. Please see Cullen, Page 25 Market Outlook F or years tech has been one of Colorado’s strongest and fastest-growing industries. Across the Front Range, the number of employees in tech jobs jumped 57% over the last decade, from 88,000 in 2010 to 139,000 in 2019. Earlier this year, metro Denver advanced to No. 7 on our company’s Tech Talent Score- card, which ranks the top markets in North America for their ability to attract and grow tech talent. While no industry has been spared from the impacts of COVID- 19, tech has proved to be among the most resilient. It is the tech industry that powers the virtual resources we all rely upon to work remotely. The pandemic also has accelerated other trends already in place that depend on technology, including the adoption of e-com- merce, grocery delivery, telehealth and streaming services. Tech is poised to emerge from this pandemic stronger than ever. And the communities that can rally in this challenging moment to attract growing tech firms to their market will cement their place within the next crop of global tech leaders. n What tech talent does Colorado have? According to our research, technology companies have expanded their real estate foot- print by 23% along the Front Range over the past two years, from 17.4 million square feet in 2018 to 21.4 million sf in 2020. Within metro Denver, downtown Denver has the largest tech footprint (3.5 million sf), followed by the northwest sub- market (3 million sf), Boulder (2.5 million sf) and the southeast sub- market (2.4 million sf). The tech-talent labor pool in metro Denver is the 12th largest nationally and the fifth-fastest growing. Tech jobs amount to 6.7% of the overall metro Denver workforce – compared to the national average of 3.7%. Because Colora- do not only can supply great talent, but also support the much-desired live-work-play lifestyle, metro Den- ver also has a young pool of tech workers. It is the fourth-most con- centrated millennial market, with 30.1% of its population aged 22 to 36. n How can Colorado tech thrive in the wake of coronavirus? COVID-19 provided an economic shock that is nearly unprecedented in its imme- diacy. Remote work already was being entertained by office users prepandemic, with tech firms often at the head of the pack, but COVID- 19 forced an overnight, near uni- versal adoption. In the span of a few months, we already have seen the pandemic triggering major shifts in office strategy. Some companies have announced broad expansion of their remote work policies while also committing to large new office leases. One of the world’s largest tech firms recently announced the opening of six new offices across the country, including an increased presence in metro Denver. The dominant message of late has been that the forced adoption of remote work during an extremely challenging time was successful, but, particularly within tech, there still is very much a need to bring people together to collaborate and innovate. Emerging from the pandemic, we expect to see a fundamen- tal redistribution of tech talent – spreading the wealth outside Silicon Valley to a cluster of cities with rising tech talent. Long-term office closures have triggered many tech employees to relocate out of expensive, coastal urban cores into more affordable communities with superior quality of life and a grow- ing talent pool. Colorado, with its established tech ecosystem, cov- eted recreational outlets and rela- tive affordability, is a prime target for this sought-after tech work- force. Metro Denver already has been a beneficiary of tech’s secondary and satellite offices in recent years, but the COVID-19 pandemic will accel- erate the tech industry’s growth outside of Silicon Valley. Instead of choosing one or two cities for large headquarters offices, we may now see tech firms break into four or five offices across the country, choosing to have a presence across several top tech talent markets to stay competitive instead of being constrained to one market’s suc- cess. At the same time, we can expect to see Colorado chosen as a headquarters destination, housing companies’ top leaders, which will only further our state’s ambitions. This next year is a huge oppor- tunity for Colorado. With so much changing, we need to build on our momentum, attract as much tech talent as we can and further estab- lish our city as one of the top tech markets in the country. If we do this right, Colorado – much like the tech industry at large – will emerge from this situation stronger and more innovative than ever. s How tech moves forward in the wake of COVID-19 Matt Harbert Vice president, CBRE