What does the crystal ball say about post-COVID leasing? Our experts are here to tell you what they predict with their years of expert experience. Our office stays up to date on leasing trends to better serve our clients. Jeff Mason breaks down lease forecasting through the office, industrial, bio-medical, and retail markets.
The office sector will take some time to come back, but Jeff believes that we are social animals and will want a place other than home to call “the office”. He states that our capability to work from home has become stronger with Zoom and another emerging tech and that has helped us adapt. He believes that business and employees will eventually come around to the desire of having brick and mortar offices. Blending both physical and remote working capabilities will be key in commercial real estate moving forward, however. One sector that has been hit hard is Denver’s oil and gas companies with many large blocks of office space in the CBD offered for sublease. With this in mind, Jeff thinks that the office demand will bounce back eighteen months after a vaccine is distributed throughout the country.
The economic boom in e-commerce has been good to the Industrial sector; we suspect this will taper off slowly in the next few years. Direct vacancy remained stable quarter-over-quarter in 2020 at 6.9%, while total availability increased by 10.5% in Q3 2020. The industry will still see more growth than other sectors of the current economy, but it will grow slower after a vaccine has been widely distributed. We predict that this will take more than two years to see, and the level of activity in this sector will remain strong at this time.
The Biomedical sector will see a blossoming that may last for 5 to 10 years. About 266 medical office buildings in the Denver metro area total nearly 10.9 million square feet. The vacancy rate in the first half of 2020 was just above 10%, as it was in the second half of 2019. Of that total, 1.1 million square feet is considered vacant. According to a CBRE report on medical real estate, Denver and the Front Range will see this sector grow due to our five major health systems. At the end of Q2 2020, more than 344,000 square feet of medical office building projects were under construction in metro Denver. Jeff expects to see growth here but not as much as having projected in 2019. There will be continued growth due to hospitals needing expansions because they required additional medical office capacity.
Now we have the true loser in the post-COVID economy, retail. There are seeming contradictions from pre-COVID days, however. Retail’s largest market, the Northeast part of the state, realized a vacancy increase of 7.9%. While a relatively small piece of the total market, Downtown retail space remains well occupied and maintained a vacancy rate of 1.7%. There were almost 58,000 sq. ft. of new retail space in Q3 2020. Jeff suggests that home improvement stores will have a higher demand. Jeff anticipates that some restaurants will come back and some shops will come back post-COVID with regulations loosening up, but they won’t be as vibrant a part of the economy as they were only a year ago.
Jeff is confident that the more challenging environment is for new construction because people are more hesitant about signing long-term leases during a volatile economy. Of course, time will tell if these predictions come true, so keep this article handy and tell us how well we predicted the future in 18 months, two years, and five or more years. Jeff Mason is happy to discuss more market forecasting and explain how these market forecasts can affect your company or your commercial real estate.
Jeff Mason is a partner and broker at Benchmark Commercial, boasting over two decades of experience working within commercial offices with office furniture and over ten years in commercial real estate. You can reach Jeff at Jeff@crebenchmark.com or give him a call at 303-395-0113.
Last Quarter, Tanner Mason and Joe Lengyel had the opportunity to work with Trips for Kids. We were able to save them money on their new lease, by looking at their space needs and navigating through negotiations with the landlord on their behalf. Joe Lengyel was able to help this non-profit find 2,150 SF of space in Arapahoe County. We are honored to have had the pleasure to work with such a great non-profit.
Trips for Kids Denver Metro is dedicated to giving under served and at-risk youth the opportunity to experience and learn more about the natural beauty of Colorado, from the seat of a mountain bike. Trips for Kids strives to give children the chance to see a different side of Colorado. They also work to expand their understanding of what each child can achieve, and to make personal connections with the natural world. Trips for Kids Denver Metro is a member of Trips for Kids, a 501(c)(3) nonprofit organization based in Marin County, California. Founded in 1988 and now operating in over 75 locations throughout the United States, Canada and Israel (information pulled from Trips for Kids Denver Metro website). Trips for Kids Denver Metro strives for excellence and quality in all facets of its programs starting with their values of safety, compassion, integrity, respect, and fun!
According to Joe Lengyel, “cost control and anticipating future expenses was paramount to getting a deal done. Being a non-profit, Trips for Kids has to have every dime spent approved by a board”. The starting ask was $12.00/sf/MG, including the NNN’s at 3.90, with $0.50 cent hikes scheduled every year. The Landlord was also asking for a personal guarantee and a Credit Check application to be filled out by a member of the board for security. Joe Lengyel, with the guidance of Tanner Mason, was able to negotiate the terms to bypass the personal guarantee by explaining the purpose of the non-profit and showing them their exemplary track record and contribution to the community.
The cost per square feet and $0.50 cent rate hikes were the next major negotiating points. Benchmark Commercial negotiated only $0.25 cent hikes, but the $12/sf price was cost prohibitive for the non-profit. Ultimately Benchmark Commercial Real Estate was able to lower the rate to $11.50, and to ensure that the rate remained unchanged for the duration of the lease. Though the net effect of this is the same overall cost for the entire lease, we were able to give Trips for Kids the gift of seeing the future, which has allowed them to anticipate the upfront cost for the duration of the lease.
We are Denver’s firm of choice for tenant and buyer office and industrial representation. As a local firm, Benchmark understands the Denver market and the key audiences involved. We are your experts in the industry, Benchmark’s team has over 50 years of experience in the Denver market. Leveraging this local market knowledge and strong industry relationships, we’re able to give our clients peace of mind while saving them time and money. Who doesn’t want to save more money and time?
- Our Market Knowledge and Expertise
We select and tour the best spaces to fit your needs: Once we understand your company’s needs and goals, we analyze what is available in the market and match your needs to a handful of well-suited options.
- We Save You On Time
We look at how your space will grow with your needs, what kinds of build-out and features your company may need, and what your budget looks like for real estate. All this information must be gathered, thoughtfully planned out and incorporated into your bottom line.
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We understand the current market landscape and rates, as well as how and what landlords are willing to negotiate, given the current market. We are here to protect your bottom line and fulfill your needs while securing the best possible lease terms for your company.
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It’s likely that your broker has done a deal at the property or with the landlord. Industry connections, knowing the landlord, and knowing comparable deals at that location can be vital during negotiation.
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From scheduling meetings with architects, general contractors, or other service providers, to creating a lease abstract for quick references of major lease terms, or providing sublease marketing if the space has become too small or too large – we’re your advocate and we’re here for you. Our involvement doesn’t end when the lease is signed. We’re happy to continue to provide you with industry expertise and knowledge!
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As a partner of Exis, our firm has access to and contributes to their depth of international real estate knowledge. With their worldwide team of industry experts, Exis is setting the global standard for tenant representation, delivering strategic consulting, and pragmatic solutions to our clients.
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