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Page 4 — Office & Industrial Quarterly — March 2021 www.crej.com OFFICE — MARKET UPDATE C ommercial real estate experts anticipate choppy waters for office investment sale activity over the next six months, as the world awaits widespread immunization. With immunization expected to bring the pandemic under control, rays of hope are shining down on the Den- ver metropolitan statistical area, and our team in Denver is confident the city will be a bright light coming out of the pandemic. Corporate relocations from MSA to MSA and from central business districts to suburban communities, remote and flexible work environ- ments, dedensification and well- ness are all major themes, among others, affecting office investment in the future. Already in motion prior to the pandemic, these themes now are accelerating. Den- ver’s office market stands to benefit from these changes, resulting in capital sources continuing to invest in assets in our city. Denver is projected to rank in the top 10 for best cities to recover from coronavirus. The Mile High City always has been a highly resilient market. After the 2001 and 2008 downturns, Denver experienced significant job growth, growing by almost 79% combined. It is still one of the country’s hottest mar- kets, driven by leading metrics in population growth, a highly edu- cated workforce and quality of life. Denver’s job market has added 368,900 nonfarm employees across a diverse set of industries in the last decade, growing more than 23% since 2010, almost 1½ times the national average. This is important because job cre- ation fuels future office demand. Denver’s popula- tion growth has continued to soar over the past decade, growing over 17%. Denver’s population is 2.9 million today, and it is projected to grow to 3.1 million by 2025. A surge in in-migration could lead to greater future growth than projected; Colo- rado attracted 60,000 net new resi- dents in 2020, which landed Denver in the top five cities across the U.S. for population gain in 2020. Some companies are relocat- ing from high-cost gateway cities to emerging markets throughout the Sunbelt and Mountain West. This major trend is due to avail- ability and cost of talent, favorable personal income tax rates and pro-business governance. Denver is regularly identified as one of the nation’s top markets for new corporate headquarter relocations and expansions due to the growing educated labor force, high quality of life and economic strength. Cur- rently, Denver is home to 22 Fortune 1,000 companies and 10 Fortune 500 companies. In its Better than Normal: Vision 2021 report, JLL Research proj- ects Sunbelt and Mountain West markets to outperform gateway cities within 36 months, driven by increased adoption of distributed work models (hub and spoke) and contin- ued office reloca- tions. The MSA-to- MSA migration has proven to be more impactful on the overall U.S. office landscape than the CBD-versus- suburban office debate. In Denver, as occupiers analyze their talent demands and space needs, most could find that they do not need to choose a purely urban or purely suburban strategy; both have value and both environments can thrive in a post-pandemic Denver. Our team has been back in the office since June, with varying occu- pancy levels depending on when coronavirus cases were spiking in our state. We are fortunate our leadership endorsed this reentry because, like many growing organi- zations, our company culture is key. We anticipate most of the discus- sion about working from remote locations will have a minimal long- term impact on occupancy. Humans are social animals who connect with each other to cre- ate progressive results. For certain roles, evaluating performance and measuring productivity is challeng- ing in a virtual work environment. As soon as vaccines are widely dis- tributed, our team expects office space demand to exceed prepan- demic levels with pent-up demand and short-term renewals coming to expiration. When JLL surveyed more than 2,000 office tenants for the Vision 2021 report, one theme is clear: Ten- ants expect their buildings to be focused on health and well-being. Even in the prepandemic environ- ment, health and wellness were growing concerns for office tenants, but COVID-19 has accelerated this preference over the past year. It stands to reason that healthy buildings in healthy environments will drive healthy returns. Selective tenants might require things like improved air-filtration systems and natural light. Owners should expect contactless security, elevator and access technologies to become stan- dard tenant desires moving forward. De-densification will play a role in overall employee satisfaction, as well as offsetting the partial work- from-home dynamic. A moderate uptick in employees working either permanently or mostly from home reduces overall desk needs, allow- ing space to be reimagined for new and innovative uses. Pivoting to office investment activity, in 2020, office sales volume was down 19.5% in Colorado, and sale velocity was down 54.8%. Near- ly 53% of the sales volume in 2020 occurred in the first quarter, with the rest of the year muted. Early in 2021, our team has noticed institu- tional capital’s increased willing- ness to underwrite office assets, sig- Denver’s resilience will drive investment activity Larry Thiel Managing director, capital markets, JLL Jason Schmidt Managing director, capital markets, JLL Please see Thiel, Page 17