CREJ

Page 28 — Office & Industrial Quarterly — March 2021 www.crej.com INDUSTRIAL LEASING T he pandemic has had dra- matically opposite effects on the office and industrial markets in Colorado and throughout the U.S. Office markets such as Denver are seeing vacancy rates rise to the highest levels in a decade as office-occupy- ing industries suffered significant employment losses due to COVID- 19 throughout 2020. Industrial markets, on the other hand, which prepandemic already were seeing an upsurge due to steady growth in online sales, have seen that growth accelerated as the work-from-home model has been fully embraced. Denver saw over a million square feet of new indus- trial properties introduced in the last quarter of 2020, with another 8.2 million sf in the pipeline set to meet growing demand. The Denver office vacancy rate hit 15.6% at the end of the year, the highest level since the end of 2011, according to CBRE research. An estimated 2.2 million sf of sublease space hit the market since the pan- demic began, an 86.1% increase. Meanwhile, the industrial mar- ket saw more than 3.4 million sf of warehouse, manufacturing and other industrial space absorbed by new tenants in 2020, a 14.9% increase over 2019, according to CBRE. In the office market, companies are embracing a distributed real estate model, pushing against the rising cost of real estate leasing and ownership by combining work from home with smaller, satellite offices in suburban locations and downsizing to token offices in major metropolitan centers to reduce costs. Others are taking advantage of rising vacancies to upgrade their offic- es in a strategic flight to quality. On the industrial side, new space is being snapped up faster than it can be built, and online retailers are constantly on the lookout for last-mile warehouse and distribution facilities in urban locations to meet demand, both on a long- and short-term basis. While telecommuting may not be a viable option for all industries or even all employees within a com- pany, many organizations have utilized remote work models with great success, reducing the amount of office space needed and chang- ing what constitutes an ideal loca- tion. However, location will remain a key factor for sectors that rely on talent, transportation and ease of access to other companies. What this means across both the office and industrial sectors is that deals are happening faster than ever, and owners, asset managers and brokers have had to find new ways to adapt the property search, evaluation and lease consummation processes to accommodate this new way of doing business. Technology continues to be a catalyst for change in all areas of business and industry, and the real estate market – which has long been resistant to incorporating new tech – is no exception. It has become clear during the past 12 months that it is time for the com- mercial real estate industry to catch up with the innovation office and industrial property tenants use. While there has been some devel- opment of technologies out there aimed at operational aspects of real estate, very little has changed in the industry when it comes to the deal-making aspect of the business. Owners, asset managers and brokers often are challenged by the antiquated and inefficient processes used in modern leas- ing transactions that are mired in administrative tasks that could be easily solved with the right technol- ogy. With the velocity of deals in commercial real estate today, there is no time to waste. New commercial real estate tech- nology platforms created in part- nership with industry experts focus on providing a single location for brokers, landlords and tenants to share information, work seamlessly throughout the leasing process and, ultimately, close deals faster and with greater efficiency. The U.S. and the world are expe- riencing a new and rapidly evolving model of how business is done, and office, industrial and retail markets are adjusting to this new business environment. The pandemic and resulting historic economic shut- downs have had a dramatic impact on the commercial real estate world. The enduring industrial boom is a stark contrast to the sudden office market crash. CRBE’s research shows that 1.1 million sf of new or existing office space hit the Den- ver market last year that was not taken on by tenants. This is the first time in a decade that the city’s office market experienced negative absorption. Office-using employers shed more than 8,400 jobs in Den- ver compared with the same period in 2019, according to CBRE. That doesn’t account for people work- ing from home and not using their office space. In contrast, the indus- trial side added 1,800 jobs in Denver through the same period. We expect these trends to con- tinue. On the office side, with addi- tional sublease inventory hitting the market and a plethora of new, unused space, we expect compa- nies that have paused renewal and relocation plans over the past year to start making decisions quickly in either a flight to quality or move to a more hub-and-spoke approach to leasing. The industrial sector is expected to continue to grow unabated as work from home and reducing higher-priced downtown office space become a bigger part of employer strategies. ▲ kylew@dottid.com Streamline leasing to keep up with market realities Kyle Waldrep Founder and CEO, Dottid