CREJ

Page 6 — Office & Industrial Quarterly — March 2022 www.crej.com OFFICE — MARKET TRENDS For Leasing Contact Kirsten Whitworth (303) 796-8288 DPCcompanies.com EVERYTHING YOU NEED. ALL RIGHT HERE . Carrara Place, Englewood 4601 DTC, Denver Denver West, Lakewood One Cherry, Glendale Windermere, Englewood A s we enter our third year of the pandemic, the Denver office market is beginning to show signs of growth. Leasing activity picked up considerably in the latter half of 2021 as vaccination rates increased and companies expressed higher confidence in returning to the office in some capacity. While current leasing activity within Denver’s office market is still dominated by short-term leases, coworking and downsized office spaces, companies are starting to evaluate more long-term strategies. Taking into account market uncer- tainty, high construction costs, and the growth of hybrid work environ- ments, many companies are think- ing about their real estate and its impact on their operations in new ways that allow for continued suc- cess. Knowing no one-size-fits-all solu- tion exists, there are four general trends worth watching across Den- ver’s key submarkets: downtown Denver, Cherry Creek, Interstate 25-Colorado Boulevard, Denver Tech Center, northwest Denver and west Denver. 1. Space reallocation. With the wide adoption of hybrid work models, companies are evaluating their square footage needs. Many companies that once occupied larger office spaces are downsiz- ing, providing opportunities for smaller companies to acquire some great locations. This is most evident in downtown Denver, where the vacancy rate was at 25.4% in the fourth quarter. In addition to the 8.5 million square feet of office space currently available, 847,000 sf is under construction, which will contin- ue to provide more opportunities for companies of all sizes. Forecasting sev- eral years down the road, other companies are choosing to assess how they can update their current footprint to better accommodate new workplace needs like integrated technology, dedicated Zoom rooms, collabora- tion areas, and social hubs and hoteling. However, major consid- erations that influence these deci- sions are the budget and timeline of a major renovation with current construction costs and lags in the permitting process. 2. Location migration. Through- out the pandemic, there has been a shift in where companies are located. Citing lower lease rates and access to talent, many companies have moved from the central busi- ness district and Lower Downtown to the Denver Tech Center. Similar to downtown Denver, companies that are leasing offices in this sub- market typically are pursuing short- er-term leases while they figure out long-term solutions. The northwest corridor contin- ues to attract businesses from the Boulder market, many of which are in the biotech, data science and laboratory/research sectors. While vacancy rates in this submarket were the highest in the fourth quar- ter at 26.4%, demand for quality office spaces in this area will con- tinue to drive activity this year due to its central proximity to key talent pools in both major metro areas. 3. Flexible solutions. While leas- ing activity is starting to pick up across the city, many companies are still not back in the office full time. As a result, we continue to see businesses opting for short- term leases, including coworking spaces like WeWork and furnished spec suites. Relatively unheard of a few years ago, many landlords are considering shorter terms and more concessions for tenants to help fill vacancies. Likewise, there is significant sublease inventory still available. Submarkets with property owners who are not as flexible are experiencing higher vacancy rates. For example, in west Denver, some property owners are not offering tours on subleases and have been slow to engage tenants, leading to vacancy rates of 24.4% in the fourth quarter. 4. Flight to quality. For many compa- nies, returning to the office involves a significant operational – and cul- tural – shift from the past two years. There are as many opinions about working from home as there are employees at a company, and while no solution will satisfy all of them, one factor can be agreed upon: Employees do not want to come back to a subpar work environment. Companies seeking out quality office spaces is not a new phenome- non, but many are thinking through their location, amenities and over- all state of their offices with more scrutiny than ever before. One sub- market that is meeting this demand is Cherry Creek. With the lowest vacancy rate in the metro area, this submarket continues to suffer from low inventory, with only 384,000 sf available of its total 1.9 million sf of office space and 77,000 sf of new office under development. Demand Denver office market trends to watch this year Andy Cullen Partner and managing broker, Tributary Real Estate Please see Cullen, Page 15