CREJ

Page 20 — Office Properties Quarterly — June 2019 www.crej.com Coworking of all U.S. office stock at the beginning of 2019.We project ample additional room for growth in all markets across the country – flexible space could pos- sibly account for closer to 30% of office stock 10 years from now. And while we believe markets across the nation have growth potential, certain metros possess qualities that will make them standout performers. Cue Denver.With a population antici- pated to surpass 3.3 million within the next 18 months, we’re one of the nation’s fastest-growing metropoli- tan areas. From 2010 to 2018, regional population increased by 15.1 percent – three times the pace of U.S. population growth. Let’s focus on the urban core. This area includes the central busi- ness district that reaches across Lower Downtown,West CBD, midtown CBD and Uptown/east side; and midtown “suburbs,”which encompasses all the areas immediately surrounding the CBD, such as PlatteValley, River North, Speer, Auraria, City ParkWest and Capi- tol Hill.This geography has recorded an even greater population gain: 40.6% during the same period. In 2017 and 2018, more than 6,200 residential units were completed, under construction or planned – a figure that translates to capacity for an influx of roughly 7,700 new downtown residents. What other factors bode well for Denver’s coworking growth potential? One answer is new construction. Since 2010, 9.7 million square feet of office space has delivered marketwide – a third of which was delivered last year alone.Within the CBD, 3.2 million sf was delivered during the same period. Local developers have increasingly sought to transform underutilized surface parking lots and neglected industrial properties, converting them to highest and best use of office and/or mixed-use properties. Denver’s office market was, thankfully, not overbuilt just prior to the last down- turn. Our strong economy has served as a magnet for new residents and businesses. So, when all this new con- struction was delivered, it didn’t flood the market with excess space; rather, it gave tenants additional options with top-of-the-line amenities in a tightening market. Coworking and flexible-space busi- nesses occupy approximately 2 percent of Denver’s entire office market.The overall footprint for these operators has surged 8.2 times since just 2015.While spread throughout the entirety of the metro, their focus remains undeni- ably on the urban core. Here, cowork- ing occupies nearly 1 million sf, and it’s poised to move into an additional 400,000 sf of space during the next six to 12 months. Over the last year, its 750,000 sf of space has wonWeWork the distinction of the urban core’s largest tenant – a title previously held by Denver-head- quartered DaVita.WeWork’s prefer- ence is typically for Class A and trophy product across new construction and commodity, and it often takes down several floors – if not an entire build- ing – in single lease transactions. Recent examples include a lease for 86,000 sf at Junction 23 in PlatteValley, another for 31,000 sf at Canyon 28 in Boulder and a deal for 18,000 sf at Financial House in Cherry Creek. Make no mistake though:WeWork is undeniably today’s golden child among flexible-office operators, but it’s far from the only shop in town.While the major- ity of coworking and flexible space oper- ators lease space, some choose to pur- chase buildings. Novel Coworking pur- chased its second Mile High location at 1801 Broadway in April – acquiring the 198,000-sf building in Uptown/East Side. It already owned the 125,000-sf 1630 Welton St.We expect additional cowork- ing leases and purchases to close, both big and small, in the near term as ten- ant demand creates additional need. Looking ahead, coworking and flexible space operators must be aware of large- block corporate leasing, which is expect- ed to become more prevalent as com- panies move or expand to newmarkets and/or as companies seek flexibility in their leases. Rising costs in most major markets, along with increased competi- tion could put a strain on the industry’s profitability. Coworking operators will continue expanding into the suburbs to cover tenant demand outside the urban core. Future market softening could fil- ter out weaker coworking players, while merger and acquisition activity will help provide scale and enhance the global reach of operators. V Continued from Page 1 JLL Novel Coworking Novel Coworking purchased its second Denver location, 1801 Broadway, in April – acquiring the 198,000-sf building in Uptown/East Side. It already owned the 125,000- sf 1630 Welton St. building.