CREJ

Page 14 — Office & Industrial Quarterly — March 2021 www.crej.com OFFICE TRENDS A fter the roller-coaster year we experienced in 2020, we’re all looking for a little bit more calm and predict- ability as we head further into 2021. Fortunately, with more clarity around the COVID-19 vaccine rollout and its impact on our daily lives, we can anticipate a year of recovery marked by change. As job losses in various sectors around Denver continue to slow as businesses are allowed to return to something closer to prepandemic normalcy, there will be a rebound in the economy and office market, especially in the latter half of the year. As we try to navigate new reentry challenges, it’s important to understand some key trends that will affect the workplace. 1. The rise of the hybrid model. In many respects, COVID-19 acceler- ated trends we already were experi- encing in office real estate. Among them is the “hybrid model” of work, which can mean a few different things but generally refers to a combination of working from home and at the office. Many companies are realizing that employees enjoy working from home and can main- tain productivity levels, and while some companies have decided to abandon their offices altogether, most employers will retain their office space in some form while perhaps allowing employees to work from home at certain times. Some companies are considering rotating the days that employees work remotely in order to have fewer people in the office at once – a sensitivity that is likely to emerge in a post-COVID-19 world. This means that companies may choose to lease smaller spaces with desks more spread out. Those desks will be part of a “hotel- ing” approach, in which employ- ees don’t have a set desk but rather can touch down anywhere in the office. This will require new office management and employee guidelines, as well as an increased focus on sanitization in order to meet new standards for cleanli- ness where shared surfaces are concerned. Integrated technology and teamwork considerations also will come into play as this model becomes more popular to ensure consistency of corporate culture. 2. Tenant improvement challenges. Last March as the virus took hold, Colorado didn’t order the shutdown of construction sites as other states did, although the economic situa- tion that followed has created slow- downs for various types of building. Most important to prospective tenants, there are delays in acquir- ing the permits necessary to com- plete tenant finishes as a result of permit staffs across the Front Range working remotely while using pro- cesses that were designed around face-to-face interaction. Some governmental agencies have had to furlough workers as a result of depressed tax collections that have affected their budgets. Tenants who want to remodel an office space before moving in should anticipate that these challenges are likely to continue in the near term as permit offices work to find ways around these challenges. Additionally, although some may have anticipated a dip in construc- tion prices for tenant improvement, projections indicate that construc- tion prices generally are likely to tick up as supply chain issues and demand for materials persist into 2021. 3. Market fundamentals will begin to shift. The economic fallout from COVID-19 significantly changed the trajectory of the commercial real estate market everywhere, metro Denver included. Millions of square feet of office space were placed on the sublease market in 2020, in the central business district in particu- lar. This was the result of compa- nies pulling back on leasing plans or vacating office space because of market conditions or uncertainty about the economic climate, but the increased availability of sublease space, which leases at a somewhat lower rate than direct space on average, created opportunity for tenants seeking to move or expand, particularly if they are in search of higher-quality space. 3 office market trends to watch as year unfolds Andy Cullen Managing broker, Tributary Real Estate As companies determine how and when employees need to be in the office, one option could lead to smaller spaces with employees not having a set desk. This will require new office management and employee guidelines, as well as an increased focus on sanitiza- tion in order to meet new standards for cleanliness where shared surfaces are concerned. Please see Cullen, Page 18