CREJ - Office Properties Quarterly

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Page 14 — Office Properties Quarterly — April 2015
Leasing Outlook
T he Colorado nonprofit sec-
tor soon will face significant
increases in operating costs
due to rising real estate
expenses in the Denver
metro area and beyond. The 2014
Colorado Nonprofit Facilities Sur-
vey Report, released in November
by Denver Shared Spaces and The
Nonprofit Centers Network, shows
that 26 percent of Colorado non-
profits will renegotiate their leases
in the next 12 months. With the
current booming commercial real
estate market, these organizations
may face a $5-per-square-foot cost
increase to retain current office
space. The average nonprofit sur-
veyed required approximately 3,500
sf for operations. Renegotiating a
lease at today’s prices could mean
nonprofits would be paying an addi-
tional $15,000 per year in occupancy
costs.
“Our organization has an office in
the Ballpark area of downtown Den-
ver where there are many services
for the homeless population,” said
Laura Thompson, executive direc-
tor of the Denver Voice. “We have
been informed that the building will
eventually be torn down. As a non-
profit, we are very concerned about
finding another space in this area
that is easy for our vendor to access
and that is affordable.
“My organization currently has
two offices, and our lease is expir-
ing in early 2015,” Thompson said.
“Since we need to be close to down-
town Denver to serve our clients, it
has been next to impossible to find
adequate space in our price range.”
For many organizations, the
increase to their overhead costs may
be even more substantial. Approxi-
mately 70 percent of survey respon-
dents stated that their workspace
would not meet their organization’s
needs in the next five years.
When asked why their current
space will be inadequate in five
years, most nonprofits responded
that their offices are bursting at the
seams – they are not leasing enough
space to accommodate current pro-
grams, administrative staff or stor-
age needs.
As nonprofits of all types see the
demand for services continue to
increase, even those who currently
have adequate space may need
to expand to accommodate their
stakeholders’ needs. The Nonprofit
Finance Fund’s 2014 State of the
Sector Survey reported that non-
profits nationwide are experiencing
increases in demand for services for
the sixth year in a row.
“This information is very use-
ful for nonprofits, policymakers
and funders,” said Renny Fagan,
president and CEO of the Colorado
Nonprofit Association. “The market
is changing and nonprofits need
information like this to stay on top
of trends.”
More Nonprofits Lease than Own
While leasing can be advanta-
geous in down markets and can
preserve flexibility for growth, it
also can expose organizations to
additional risk when high-market
demands increase rental rates.
Nonprofits that lease space are pay-
ing an average of $10.50 per sf, the
survey found. These favorable rates
negotiated during the recession may
no longer be available. Some organi-
zations may be fortunate enough to
find a benevolent landlord willing to
donate space or provide below-mar-
ket lease terms;
however, as prices
rise, many once-
donated spaces for
nonprofits will be
reintroduced to the
market.
In today’s mar-
ket, nonprofits
are more subject
to price fluctua-
tions than before,
as more organiza-
tions are leasing. In
2002, a funder-led
Denver/Boulder
Nonprofit Facilities
Needs Study conducted by the Rose
Community Foundation and The
Daniels Fund found that 43 percent
of nonprofits in the metro area and
Boulder leased their space. Today
this number has increased by 10
percent.
What are Colorado’s
Nonprofits Looking For?
Although budget restrictions are
significant when it comes to finding
space for the nonprofit sector, many
also have specialized needs. One of
the most desired amenities revealed
by the survey was warehouse space,
which has become difficult to find
at an affordable rate since the legal-
ization of marijuana.
Additionally, nonprofits need
access to large training spaces, event
space, commercial kitchens and per-
formance space. Storage space, con-
ference rooms and small meeting
rooms were also highly desired.
Opportunities for
Nonprofit Organizations
The traditional solution for many
nonprofits facing rising rents would
be to move outside the traditional
service area in pursuit of affordable
space; however, the growing move-
ment of nonprofit shared-space
models provides new options. Den-
ver is home to one of the largest
concentrations of intentional shared
spaces for nonprofits in the United
States with over 20 nonprofit cen-
ters currently operating and more
coming on line each year. Colorado
nonprofits and social entrepreneurs
are driving the movement toward
collaborative, creative workspaces
that meet the needs of employees,
clients and community members.
Nonprofit centers are most often
categorized as “social purpose real
estate” – buildings focused on the
triple bottom line of people, planet
and profit. Sharing space allows
nonprofits to economize on office
space as well as shared services like
IT, bulk purchasing, cleaning, secu-
rity and sometimes shared staffing,
while the landlord receives a mod-
est return on investment. Addition-
ally, these shared spaces allow for
organic collaboration among like-
minded organizations, increasing
their impact on the communities.
The growing trend has resulted in
over 350 mission-driven shared
spaces across the U.S. and Canada,
with another 250 centers in some
stage of development.
Attitudes about sharing space in
Colorado have shifted substantially
since 2002, when nonprofit shared
space was a novelty and few mis-
sion-driven models existed. Non-
profits are more familiar with the
concept now, better understand the
advantages and disadvantages, and
are more sophisticated about how
shared-space models can support
their mission. While
shared space isn’t for
all organizations, it is
increasingly being con-
sidered as an option to
expand impact and effi-
ciency.
Thompson said she
sees shared space as
a potential option for
Denver Voice. “We are
working with a number
of partners who serve
the same population to
see if there are spaces
that we could share as
an alternative to hav-
ing our own separate
space,” she said.
What’s Next?
The Nonprofit Centers
Network and Denver
Shared Spaces chose
to issue the Colorado
Nonprofit Facilities
Survey in mid-2014 to
fill a 13-year data gap
around nonprofit facil-
ity needs and to better
understand how non-
profits are using build-
ings to meet their mis-
sions. The intent was to
analyze today’s space
needs and to capture
the size, scope and state
of nonprofit space use
in metro Denver and
throughout Colorado.
The electronic survey
tool was distributed
statewide via a variety
of partners, collecting
249 unique responses.
This represents only 1
percent of the potential
pool of eligible organi-
zations.
As such, DSS and
NCN are planning a sec-
ond phase of the research that will
increase the geographic and subsec-
tor representation of respondents.
In order to have a more robust data
set that reaches cities and towns
outside of the Denver metro region,
a listening tour is being planned
to convene nonprofits and create a
forum for discussion of space-relat-
ed issues. These space summits will
be held in a diverse set of counties
statewide selected to capture the
fullest range of nonprofits.
Nonprofit workspace and infra-
structure is important, because
workspace is an integral component
of how nonprofits serve communi-
ties. Organizations facing space chal-
lenges can reach out to local experts
such as DSS and NCN for support
not just around shared spaces, but
also referrals and broad advice
regarding commercial real estate.s
Katie Edwards
Membership and
technical assistance
associate, The
Nonprofit Centers
Network, Denver
There’s a bigger number of nonprofits now that don’t
know if they are willing to share space, which indicates
that more nonprofits understand the challenges of shar-
ing space, but are still open to considering it.
Source for all charts: The Nonprofit Centers Network