CREJ - Office Properties Quarterly - September 2017
We see it happening more and more these days – Denver nabs a headline in a national business publication. It happened in July when the Wall Street Journal ran a piece calling out Denver’s success in recruiting financial services firms. In the article, “Passive Migration: Denver Wins Big as Financial Firms Relocate to Cut Costs,” the affordability of real estate – both commercial and residential – is a prime factor in what is drawing top-quality financial firms away from coastal markets and to our region. As commercial real estate professionals who specialize in working with financial services firms, we have noticed that as Denver’s financial services industry grows, it is being presented with new challenges. From new technology and global workplace trends to changes in the national immigration policy, outside pressure is forcing financial services firms to adapt not only their business strategy but also their real estate strategy. In this article, we will examine three challenges currently facing the financial services industry and discuss how they impact a company’s approach to real estate. • The emergence of digital currency. Although it was created nearly 10 years ago, if you mentioned the term “bitcoin” to someone on the street as recently as 2014, you were likely to elicit a blank stare. Today, however, that’s far from true. Bitcoin is perhaps the most well-known form of blockchain technology, which is the technology that allows for online trading of digital currency. Venmo, which is owned by Paypal, is another popular digital currency payment application. And as companies like Apple introduce their own payment vehicles, it can be assumed the proliferation of digital currency will only rise. This presents several challenges for traditional financial services firms. Foremost, it’s competition for where and how people manage their money. As use of digital currency increases, demand may weaken for traditional banking services. It also is a challenge in terms of real estate planning. As people become more comfortable managing their money online, the need for traditional brick-and-mortar bank locations may lessen. Nearly 40 percent of Americans have not walked through the doors of a bank or credit union in at least the past six months, according to a December 2016 report by Centric Digital. This could either increase corporate financial services staffing needs, as roles that used to be based at a branch are now centralized in a corporate or regional headquarters, or it could reduce corporate headcounts as the overall process of managing money becomes more streamlined. In either scenario, financial services firms need to regularly re-evaluate their space requirements in the face of technological innovations like digital currency. • The pendulum of working remotely. As a multigenerational team, it’s fun to look back on how the corporate workplace has changed. For one of us, we grew up in a society where the corner office was the dream, complete with an ornate desk and overstuffed leather chairs. Beginning in commercial real estate, we reported to work at the same time each day, and when we left the office for the day, our desktop computers were left behind. For the other half of this team, our entire professional career has included being able to carry a computer around in our pocket, meaning we can work from anywhere, at any time. Our dream office doesn’t include a door and mahogany desk but rather an open floor plan, the latest technology and plentiful onsite amenities. One out of every four American workers telecommutes with some regularity, according to a March article in Business Insider. That’s a dramatic change from the world before smartphones. Although the ability to work remotely may be one of the starkest comparisons between today and generations past, we are already starting to see the pendulum swing. This past spring, IBM made national news when the company announced it was pulling back on its work-from-home policy to foster more in-person collaboration and improve company culture. Other major companies have made similar announcements in the past year. Research also shows that millennials feel their chances of being promoted are reduced when they are working remote (out of sight, out of mind). The trend of allowing employees to work remotely certainly impacted the real estate strategy for financial services firms. Firms could allot fewer square feet per person if they knew a percentage of their workforce would be absent from the office on any given day. If the pendulum continues to swing, however, those same firms may identify the need to acquire more space to ensure all of their employees have the option of coming into the office on any given day. • The war for talent in a post-election America. The war for talent in Denver is no secret. With one of the lowest employment rates in the nation, recruiting and retaining the best employees is a constant struggle for all industries, not just financial services firms. The post-election climate also is influencing the job market. There is renewed emphasis on bringing jobs back to the U.S. from other countries. Potential tax reforms to incentivize companies to hire locally in addition to policies limiting the ability for foreign workers to obtain visas could mean even more competition for the best domestic talent. Many companies are factoring in real estate in their quest to differentiate from competitors and attract the best employees. Some companies are willing to take on higher lease rates in exchange for being downtown or in a similarly urban environment, something they can leverage with job candidates. Other companies are taking a campus approach, like Charles Schwab, which recently opened a new Colorado office in Lone Tree that can accommodate up to 4,000 workers. The campus, which sits on 47 acres, offers access to impressive perks like rooftop gardens, a cafeteria and high-tech workspaces. From a bird’s eye view, the market is another important part of the real estate equation. As mentioned at the beginning of this article, part of the reason why financial services firms are targeting Denver is so that they can offer their employees a lower cost of living and improved quality of life versus coastal cities. As Denver continues to claim a larger share of the financial services industry pie, the impact of these challenges will reverberate deeper in our city. Financial services companies would be wise to factor in the role their real estate can play in helping them achieve their business objectives in an ever-changing world.