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Page 16 — Office & Industrial Quarterly — December 2020 www.crej.com silver lining, but it’s healthier than many other major U.S. markets, a testament to the longevity of Colo- rado’s sturdy prepandemic economy. While there is hope that further recovery will continue to be linked to those economic factors, other third- quarter fundamentals may not echo that sentiment in the near term. Total third-quarter vacancy was just over 16% with sublease space being the chief culprit. A whopping 4.7 million square feet of sublease space has landed in the Denver office market year-to-date, some 29% up from second quarter. And negative net absorption continued to trend downward to over 1 million sf, an unthinkable prepandemic metric. Average asking rates hover at around $29 per square foot, not a startling change from last quarter, but enough to make landlords even more jumpy as market leverage shifts toward ten- ants. Overall, third-quarter data reveal some ugly developments, but it’s only one quarter. And statistics don’t tell the entire story. There are a num- ber of “soft” indicators, which may mitigate the sting of office market statistics nationwide. Amazon, for example, plans to acquire office space nationwide for 3,500 new workers at a price tag of $4.1 billon. Amazon, in addition to other tech giants Google, Apple and Facebook, are taking large blocks of office space in New York City, “mak- ing a bold contrarian bet that Man- hattan will bounce back and there will still be a need for people to work in offices,” according to a recent piece in Forbes magazine. Those may be risky moves for big tech players, but they are not frequently wrong when acquiring commercial real estate. The fact that these companies are betting high on New York is even more enlightening. The Big Apple’s third-quarter office market statistics are far more dire than those of metro Denver. That is not to suggest that Denver and New York City are on an even scale when it comes to office space. They are not, of course. But if the term “faith” keeps creeping into the conversation for post-pandemic New York City, it certainly can apply to Denver as well. Consider this statement from the same Forbes article on why com- panies are so attracted to New York City: “They appreciate the deep pool of talent to draw from. The city offers a unique culture, diversity and ener- gy that can’t be found in many other places.” Sound familiar? Throw in “a great climate and world class leisure and recreation” and one could easily be boasting of metro Denver. The point is, Denver’s overall recov- ery factors are extremely high, not only for its portfolio of office build- ings, but for its work-life balance. Tech companies have been relocating here for the better part of a decade, and that will continue during the remainder of the pandemic, and after. There is exceptional value in real estate here. The cost of living is favorable. There are good schools, a diversified economy, room for smart growth and, of course, that Colorado “vibe.” Intangible as that may be, it is a crucial factor for dozens of compa- nies with a focus on more than just the bottom line. Silicon Valley giant Palantir Tech- nologies has garnered the most attention since its relocation here, but it is just one of many tech firms, including startups, bullish on the future of metro Denver. LogistiCare, Marqeta, AgentSync, Todyl and others have chosen Den- ver as a new landing spot, while Amazon will add to its existing port- folio here. Hard data aside, there are two dominant factors that likely will determine the durability of office space as we know it. The first is the human factor and how it relates to the office. This has been discussed ad nauseam from every conceivable perspective. There is no doubt that ad hoc cre- ativity is being severely limited by remote working. The Zoom experi- ence is both exhausting and vital. Suffice it to say that humans are creatures of habit, accustomed to living and working with each other, communicating, exchanging ideas and solving problems. This is not going to change. The second factor is the virus itself. There just is no telling what will happen next. One certainty is that deals still are being done despite the level of hardship. And yes, there will be a vaccine. There will be a new face in the Oval Office. There will be renewed hope and faith. And once those health and safety boxes are checked and rechecked, metro Den- ver office space will reveal just how resilient it really is. s Continued from Page 1 OFFICE — TRENDS strategic growth plans. We antici- pate the number of businesses that want to return to an in-person office environment to outweigh the pref- erence to work remotely. Which, in turn, will result in companies seeking shorter-term leases that will make negotiations difficult for landlords, particularly with tenants who need improvements to the office space and the landlord unable to count on a long-term occupancy. Landlords will need to work with tenants to get through the winter and into next summer, when hopefully the future is much more clear. The future office design most likely will be a hybrid model consisting of 10% to 15% of employees working from home, an equal amount working from home part-time with touch-down space in the office and the remainder working in the office full-time. The reduction in square footage will be due to at- home workers, which may be offset by increasing the number and size of offices and meeting rooms, resulting in office space utilization return- ing to a new normal, with overall office space demand decreasing by 10% to 15%. While the current direct vacancy is concerning, it is not as high as seen during past economic downturns. It’s important to note that some of the stron- gest sectors for employ- ment growth nationally in October were profes- sional services, including information sectors and financial activities. Com- bined, these office-using industries accounted for at least 25% of all jobs added in October, which signals to the fact that the increase in demand for office space will resume in 2021. Northern Colorado’s diverse economy is highlighted by higher education, medical services, agriculture, technology, oil/gas and business services, which has proven resilient in the past and is positioned well to recover faster than other areas of Colorado and the nation. s Kuehl Continued from Page 6 is for other clients where we have negotiated sweetheart deals this year at nonoffice properties that the client has pulled out at the 11th hour due to macroeconomic trepida- tions fueled by the pandemic. My office transactions, meanwhile, keep humming along as these profes- sional service organizations mirror big tech’s bullish position on office space. The five largest property own- ers in tech – Alphabet, Amazon, Facebook, Microsoft and Apple – now collectively occupy 589 million sf of real estate in the United States – five times more than a decade ago. As they continue their acquisitions in 2020 and we see signs of life in small business office leasing activ- ity, I predict we are not witnessing the death of the office as we know it after all. s A. Becker Continued from Page 14 While Denver office leasing absorption looks dismal this year, pricing and vacancy are projected to make a quick recovery