It’s no secret that the Metro Denver business economy is booming, and the commercial real-estate market is booming right along with it.
If you’re the CEO or leader of a Colorado company that’s considering a move or expansion in Metro Denver, the region’s growing success has a lot of pluses. There are new buildings under construction across the city, and the workforce is continuing to strengthen and grow.
However, with this positive momentum also comes an increasingly complex leasing and negotiating environment. To help you get the most out of your research, here are four key trends we’re seeing either emerging or continuing in 2017 that you should consider as you plan.
UNDERSTANDING HOW THE CONSTRUCTION BOOM IMPACTS YOUR NEXT MOVE
Just looking at the sky above Denver will give you a sense of how much commercial real-estate inventory is coming onto the market. More than 30 construction cranes now dot the skyline.
According to the Metro Denver Economic Development Corporation, more than 8.6 million square feet of new commercial (office and industrial) space was under construction in the third quarter of 2016.
This means you’ll soon have a lot more options to choose from for your next move or expansion, but it can quickly get convoluted. It’s great to have choices, but too many choices can become overwhelming.
To narrow down your options and form a short list of targets, start by making a list of your top five to ten priorities for your future space.
Then, consider hiring an architect to assist in creating a space program to optimize utilization and help you accurately predict how many square feet you’ll need as your company grows.
If you’re not familiar with this technique, check out this space program we recently helped create for one of our clients. It will give you a good sense of what they include.
There’s also a more in-depth article here from the National Institute of Building Sciences that gives a solid introduction.
LOWER PRE-LEASING AND STABILIZED RENTS CREATES A WINDOW OF OPPORTUNITY
Demand for new space in Denver remains relatively strong compared to other markets, but the downturn in the energy sector appears to be resulting in rents stabilizing and pre-leasing of new buildings trending down (at least, temporarily) in the metro area.
According to a recent article from the Denver Business Journal titled Denver Commercial Real Estate Faces Big Changes as 2017 Approaches, vacancies caused by bankruptcies in the energy sector are resulting in rents flattening after 13 quarters of consecutive growth. Further, only 22% of the 3.5 million square feet of new offices space now under construction is pre-leased.
A rebound in the energy sector is expected, however, so this is likely a temporary situation that gives you a unique window of opportunity.
A move or expansion in 2017 may allow you to lock in lower rents than if you delay to 2018 or beyond, and because pre-lease rates are lower than normal, it shifts more of the negotiation leverage to your side.
No matter the circumstances, understanding current vacancy rates and pricing in the market will help you secure the best deal.
As you research and develop your plan, consult with a broker that specializes in Tenant Representation. They can help to create the top five to ten areas that are most critical to support your business goals and objectives, and to form a strategy that maximizes your negotiating leverage.
AVOIDING THE REAL-ESTATE TAX “TICKING TIME BOMB”
Property values continue to rise in Metro Denver, meaning higher property taxes will likely follow.
There’s a good recap of where property taxes have been historically and where they are heading by the Colorado Real Estate Journal in a recent article titled Escalating Costs Impact Denver Properties.
Landlords pass the costs of growing property taxes and other operating expenses onto their tenants.
For you as the prospective tenant, these recurring rate increases can be a ticking time bomb, seemingly insignificant at the start, but later having a seriously negative impact on your overall budget and ROI if left unaddressed.
Work with your tenant advisor to clearly understand the impact of real-estate taxes and operating expenses, and projected increases for properties on your short list, prior to entering negotiations.
When in negotiations, be sure to include an annual “cap” on the amount of those increases your landlord can pass onto you.
PLANNING YOUR SPACE — PURE OPEN-OFFICE VS. HYBRID OFFICE LAYOUTS
Roughly a decade ago, companies (starting primarily with tech startups) began moving to fully open-plan office layouts with a goal of increasing spontaneous collaboration and creativity.
We are seeing a rising number of clients moving to pure open-space layouts in the Denver market, but you should also know that studies nationally are showing mixed results from this approach.
According to studies cited in a recent Forbes article titled The Open Office Concept Is Dead, open-plans can actually decrease productivity and employee well-being.
As a result, a relatively new trend of “hybrid office layouts” is emerging. Hybrid layouts balance open private spaces with a mixture of offices, cubicles, open spaces (no cubicle walls), interspersed communal areas, and sound proof rooms.
If you’re planning a move that includes a significant layout redesign, keep a close eye on where this trend is heading. There’s a lot of information online from expert sources such as Gensler and Harvard Business Review, and you can find current articles by searching for “hybrid office layout” on Google.
Be sure to consider how your office layout will help or hinder your ability to attract top talent who increasingly weigh office environments, culture and the associated perks in their decision making.
Apply what you learn to your space programming plan to balance optimized utilization with other ROI and competitive measurements, such as worker productivity, collaborative creativity, and overall wellness.
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