2021 - A Year of Transition for the Office Market

January 12, 2021

As 2021 begins, it is hard to believe that one year ago not many people were thinking about working from home most of the time or wearing a mask in public. The economy and the commercial real estate office market were cranking along and showing remarkable signs of resiliency. 

2020 was an interesting year, to put it mildly. It is important to keep perspective regarding the commercial office market when compared to the significant issues impacting the health, safety and well-bein of our society. That being said, our expertise is helping companies make smart real estate decisions and handle their facilities more cost effectively and ou comments are focused on that topic.

As of December 31, 2020, office leasing volume was off significantly from the prior year, available sublease space had increased significantly and very few companies were making long term decisions about their office space.

Looking back at the beginning of the 2ndquarter, the office market came to a standstill as the economy was essentially shut down and offices were closed. Companies that had not thought through the technology requirements of full-on remote working were forced to very quickly. Most companies adapted and figured out how to continue operations while working remotely.

During the past six months, there have been countless discussions and articles written about whether or not people will return to their offices. It seems clear that there will be an adjustment in the way companies and their employees will work - both in the office and from home. Based on research our company has done and anecdotal evidence from clients and industry peers, it appears that there will an increase in full time work from home as well as a hybrid model that includes a mix of both. This should lead to a net decrease in overall required square footage across the board by approximately 15 - 20%.

In addition to a net decrease in rentable space, many companies will reconsider office design to accommodate increased distancing and truly facilitate collaboration in person. Looking forward, the evolution of office design will continue to create a sense of “place” that is meaningful and matters to employees. As proven over the past ten months, the work will get done. What has been missing is the ability to mentor, collaborate and build/maintain culture. That is harder to do on Zoom calls.

2021 should be a year of transition within the office market. What will happen to building valuations? How high will the vacancy rate go? Will there be continued migration of companies from other cities to Denver to offset the net decrease in space for companies already here?

Looking back over previous cycles leads us to believe that there will be opportunities for tenants to right size, lower costs, improve space design and move to nicer buildings. Tenants who are thoughtful, strategic and able to see the future without fear will have some interesting opportunities.

Contact Jim, Sam or Ben to schedule a virtual or in-person meeting today.
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