CREJ - Office Properties Quarterly - December 2017
The Denver commercial real estate market has evolved considerably from the days of the oil and gas economy, when occupancy and rents were closely tied to the boom and bust of the industry. But until recently most businesses, regardless of type, still stuck to traditional commercial space requirements, such as the proximity of services like restaurants, gyms and retail, as well as property attributes, like large floor plans with multiple levels, expansive parking structures and prominent addresses. As a result, Denver area office space has been concentrated in central business districts like downtown and the Denver Tech Center for decades. And as the market has grown and changed, so has the idea of what makes the perfect office space. Consider these facts: • In 2015 (the state’s most recent data), 89 percent of Colorado’s businesses had fewer than 20 employees and 63 percent of all employees worked for a company with less than 100 workers. • Colorado has a higher concentration of professional services than the national average – and these jobs are more easily done from a variety of locations and don’t always require traditional office space. • Nearly 7 percent of Coloradans telecommute full time – the highest rate in the nation. Pair these facts with the dramatic increase in the number of solopreneurs and freelancers in today’s workforce – popularly known as workers of the “gig economy,” and we start to see why the ideal office location is changing for businesses and employees across the Front Range. In 2013, more than 78 percent of small businesses in Colorado were defined as “nonemployer firms,” which by definition are businesses who employ no workers, but have gross revenues of at least $1,000 per year (or $1 in construction). And we’re not just talking about Uber drivers who are not typically in the market for office space. In fact, workers in areas like professional services, real estate and construction make up more than half the “gig economy” here in Colorado, while Uber drivers and Airbnb hosts combined make up less than 5 percent of the market across the state. As a result, we now see office space in previously industrial areas turned mixed use – like River North, the Golden Triangle and Lower Highlands – that share a new set of characteristics sought after by today’s employers and employees. Among them are proximity to residential (often multifamily) housing, smaller and more unique building floor plans and sizes, and access to restaurants, grocery stores, outdoor spaces and public transportation, such as light rail. To be clear – access to nearby services, such as restaurants and gyms still matter – but they share the limelight with these other priorities. The trend becomes very clear when we look at the location of co-working spaces in the metro area, which can be found more often than not in historically nonbusiness centers from Sunnyside to Glendale and beyond. When we look more closely at the metro area neighborhoods that are home to co-working spaces, we see several common traits: • More renters than homeowners; • Above-average access to grocery stores and restaurants; and • A good mix of single-family and multifamily units. Based on these trends, don’t be surprised if sometime soon you see similar facilities popping up in areas such as City Park West, Mayfair or Centennial – all of which share many of these same characteristics. With workers and companies continuing to be more comfortable with nontraditional work settings, and “workforce sprawl” persisting outside of the urban core, what can commercial property owners and brokers do to attract employers of all types and sizes? First, they can position traditional property assets in a new context. For example, consider marketing shared spaces like atriums or lobbies as a collaborative work or meeting space that extends a business’s private office space. Second, demonstrate a willingness to subdivide larger spaces to accommodate smaller teams, a part-time workforce or telecommuters who can share spaces at different times. And third, brokers must make it easier for clients to compare locations across the metro area by helping them prioritize their needs and put neighborhoods with similar attributes in context based on those needs. There’s no question that Denver’s economy has never been more dynamic, and the demand for new and different types of office space is just one example of our diversified growth. As rents in hot areas around the city continue to march upward, traditional office space shouldn’t be counted out. Owners and brokers can feature specific assets in a new light and make minor adjustments to put these properties into new context for today’s workforce.