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.