Colorado Real Estate Journal - July 6, 2016
So here we are again, seven years into the latest economic expansion with an average expansion life of 5.4 years since October 1945, and working on transactions with record construction costs, record rental rates, record headcounts and furniture configurations only seen before in our high school cafeteria. Everyone wants to know when this cycle will end and what signs to look for. Our firm recently hosted our annual State of Real Estate event and we invite you to review the information presented: https://cushman-wakefield.onehub.com/d/r8lp/. For decades, we have seen the direct correlation between job growth and absorption of office space. Technology has not yet disrupted this relationship, despite a small percentage of the total inventory of office property that has seen technology redefine the way the space is used. The Colorado marketplace continues to add quality jobs at a pace only matched by four other states in the country and currently measures an unemployment rate under 3 percent. While these jobs continue to be heavy in the services industry, Colorado’s second-fastest growing job-producing category is “goods producing” jobs. No, it’s not all beer and marijuana. We have a diversified array of skilled “makers” that have invaded the high country seeking a business friendly, progressive environment in which to grow entirely new industries, technologies and business models. This has given birth to an incredible diversity in office product, from gleaming Class AA traditionalism to creative examples of adaptive re-use that people from all over the world come to see and imitate. Denver’s community of place makers is world class and it’s this “supply side” influence, created by the places our city has developed and the infrastructure our voters and taxpayers helped to deliver, that enabled this robust job growth to find its way to the high country. Now we just have to try not to extinguish this flame with unabated increases in the costs to hire and do business in our state. From a real estate fundamentals perspective, we have seen relatively good discipline from our office developer community, with only a handful of speculative office projects launching out of the ground with or without a tenant commitment. At the same time, a couple of projects were largely preleased long before the architects even finished dreaming up ways to reimagine the workplace. Existing, large occupiers of office space are choosing to remain and grow in the Colorado even after merger and acquisition deals that historically guaranteed those jobs would flow out of state. Additionally, we’ve seen inmigration of jobs with occupiers from coastal markets, and that trend is continuing despite sharply higher costs and concerns over workforce saturation. Ultimately, this expansion cycle will end, like all those before it, but it doesn’t appear it will end anytime soon, and our brokerage professionals still are pulling 12-hour days scrambling from meeting to meeting trying to cover robust market activity even if not all of that activity is in the traditional form. One final thought on a trend being amplified by our city’s focus on infrastructure and amenities that serve the core. Prior generations’ preferences drove a higher level of job growth in periphery or suburban locations in our cities. However, the fastest-growing generation in the workforce, millennials, has turned this decades old urban planning model on its head, driving significantly higher job growth into the core of our cities. Maybe this will change again if those kids ever have kids, but maybe it won’t. Denver’s unique in that from a transit, cultural, entertainment, business, political or almost any other perspective, our city has a fantastic core with a diverse and dynamic product offering for office users. This will continue to promote diversity in industry, use and programmatic elements that may well be our best defense in the next downturn, whenever it comes calling.