CREJ

Page 6 — Office & Industrial Quarterly — June 2021 www.crej.com OFFICE — MARKET TRENDS T he COVID-19 pandemic decimated small businesses around the country. By May 2020, nearly a third of small businesses in the U.S. had closed their doors, many citing a cash crunch and low demand, according to a report by Facebook and the Small Business Roundtable. But amid tragedy and job loss, entrepreneurs found the opportu- nity to build back something new. More than 4.3 million new business applications were filed over the course of 2020, more than any other year on record, according to data from the U.S. Census Bureau. n Colorado sees uptick in business applications. The same trend held true in Colorado. More than 93,000 new small businesses filed applica- tions in 2020, up nearly 8% from 2019. The increase coincided with the highest unemployment rate in Col- orado history, peaking at 14.4% in April. That’s not a coincidence. New businesses helped Colorado dig out of the Great Recession of 2009, and it appears the same is happening with the coronavirus-related reces- sion. “It is a great opportunity for peo- ple to take that leap when people have lost their job,” said China Califf, director of the Denver Metro Small Business Development Cen- ter. “In Colorado, we have so many makers.” Califf’s organization helps new entrepreneurs develop business plans and get from idea to launch. She also noted that it has experi- enced an uptick in new clients and a rise in new busi- nesses taking part in its startup con- sulting programs. There’s been a particular increase in new businesses centered on sus- tainability, she said. Colorado’s new businesses will be in good company: The state has among the highest concentrations of new busi- nesses in the country. Over the past decade, Colorado has ranked No. 4 in the percentage of businesses 5 years old or younger and is No. 1 for number of jobs per capita created by businesses in their first year of existence. n Things for commercial property owners to remember. It’s still unclear what impact these new businesses will have on the real estate land- scape. But the market is changing dramatically, particularly for com- mercial real estate, as the nation continues to deal with the impact of the COVID-19 pandemic. Don’t expect the jump in new businesses to impact real estate – right away. This rise in new busi- nesses is not likely to have a sig- nificant effect on commercial real estate, at least not immediately. “New businesses generally do not hire a lot of staff to begin with, and many new businesses are sole pro- prietorships. So I would not expect any near-term impact on com- mercial real estate,” said Tendayi Kapfidze, chief economist at Lend- ingTree. As they grow and develop, Colo- rado’s new businesses may end up needing to buy property, but the impact likely won’t be felt for sev- eral years. Instead, demand for commercial real estate is likely to shrink. Com- panies responded to the pandemic by shifting employees to remote work if possible. This means they need less real estate. Economists predict that this trend won’t reverse quickly, if at all. It might be a per- manent change. “A good analogy is the rise of online shopping and how that has reduced demand for retail space,” Kapfidze said. This can be a good thing if you’re in the market to buy a commercial property. Lower demand generally means lower prices. But if you’re looking to sell or use equity in your property, this trend is not as positive. Moving forward, instead of new office space or storefronts, Colo- rado might see more warehouses or other real estate that supports e-commerce, according to a forecast from the Colorado Legislative Coun- cil. Denver may rebound faster. While the outlook for Colorado commer- cial real estate as a whole may be grim, its largest city may fare better. Denver was identified as a top five target for commercial real estate investors in 2021, according to a survey by CBRE. Real estate services firm JLL called Denver a “rising star” city. Post-pandemic, there’s room for improvement – the office vacancy rate was 13.1% in the first quar- ter, up from 9.8% the year before, according to the Metro Denver Economic Development Corp. That number may continue to rise. Office leasing in the first quarter was the slowest since the early part of the pandemic, according to a report from Avison Young. With businesses continuing to downsize or keep employees work- ing remotely, Avison Young predicts the vacancy rate will rise through- out 2021. However, construction activity is decreasing, too. Cushman & Wakefield predicts construction to decline through 2021 and into 2022, with no new projects break- ing ground for a year or more. This will likely help push prices up if the economy rebounds. n Now might be a good time to refi- nance. Interest rates remain low by historical standards, meaning busi- ness owners may consider refinanc- ing their commercial real estate loans. This might be able to help business owners survive in the new economy by lowering their monthly payments or using their equity to invest in their property or business. However, not all business own- ers will find that they are able to refinance. “Lenders are being more demanding in their underwriting criteria and risk assessment,” Kap- fidze said. s How growing biz applications impact owners Melissa Wylie Senior small business writer, LendingTree