Commercial real estate, other than office space, has defied pandemic expectations in metro Denver — but for how long?

The pandemic shook commercial real estate markets to the core, creating more demand in some areas, like industrial, and destroying it in others, like office space. But 30 months after the first lockdown orders came out, not all of the dire predictions have played out.

Take the rebound in demand for retail space, which is in far shorter supply than anyone expected after consumers shifted more of their buying, even for groceries, online. Even though renters fled densely-packed areas during the outbreak, developers continued to churn out urban apartments at a robust pace, raising concerns of a glut.

Vacancy rates in Denver for retail, multi-family and industrial real estate are in the 5% range, but for office space, they are a little under 20%, Hessam Nadji, president and CEO of Marcus & Millichap, told a gathering of the Denver Metro Commercial Association of Realtors earlier this month.

Demand for office space remains soft as employees fight for the right to keep working remotely and it could be a couple of more years before the fog clears. And while companies have grasped for industrial space, signs of retrenchment are mounting as online retailers pull back. But Denver doesn’t look as vulnerable as other markets.

Below are what area brokers on a forecast panel put together by the DMCAR predict is ahead in the areas where they specialize:

Office: An uncertain future

When employers closed their offices and sent workers home at the start of the pandemic, most probably didn’t anticipate that more than two-and-a-half years later they would be struggling to bring them back and facing uncertainty about how much space to lease.

Tenants in office buildings are taking on shorter leases for less space and trying to craft the magic formula that will make their workers want to give up commute-free shifts and self-prepared lunches to come back. Many still don’t know what their workforce will look like in the months ahead, and that is making it hard to plan for their office requirements, said Lee Diamond, a senior vice president at CBRE.

A tight labor market has worked against a return to the prior work in the office requirements. With workers in short supply and resigning at a high rate, some employers have been afraid to force the issue. A recession, however, could give management the upper hand again in demanding that workers show up and take a seat.

Another big problem for the office market is all the space that tenants are subleasing because they no longer need it. That was about 5 million square feet in metro Denver in the second quarter of 2021. It had dropped to 4.7 million more recently, but Diamond predicts it will soon go back above 5 million square feet. The glut of space is getting worse, not better.

Landlords will need to get more creative in the concessions they provide and in the amenities offered to lure workers back to the office, including more on-site restaurants, fitness facilities and collaborative workspaces.

Office markets continue to see a flight to quality, Diamond said. …read more

Source:: The Denver Post – Business


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