How real estate market is managing through COVID-19
As the repercussions of COVID-19 began to unfold, CBRE – and the world – saw building after building close in quick succession. Property managers rushed skillfully in the flurry of closings to identify crisis procedures and plan what measures were necessary to keep buildings safe for essential personnel and eventual reoccupancy. While it will take several quarters to fully bounce back from the significant impact of COVID-19, a number of reopenings have energized activity around Denver.Adherence to all state and local guidelines requiring everyone to wear a mask while entering and exiting the building and observe social distancing in building lobbies and elevators.
While an increase in cases might cause the closure of commercial cases again, property managers are implementing measures and protocols to ensure that buildings are safer than ever before. This includes retail and industrial properties, not just office spaces.
What is happening in Denver’s office market? While all office buildings that we manage have seen tenants open back up, we have witnessed a slow return to occupancy outside of essential personnel. Suburban office markets like Lakewood and Golden are seeing the strongest levels of occupancy, hovering around 50%, while the Denver Tech Center is at 25% to 30%. Boulder is next highest at 25%, followed by Highlands Ranch at 18% and downtown Denver, which oscillates between 8% to 10%. Many tenants report that they will wait until 2021, or in some cases until there is a vaccine, to make a decision to come back at full capacity.
While some rush to judgment on the fate of office space, our second-quarter report on the metro Denver office market identified signs of life in the market. Despite the shutdown, several tenants signed new leases or extensions in the second quarter, notably within the tech and financial services industries. Class A space recorded 113,241 square feet of positive net absorption, showing there still is a flight to quality among tenants.
What is happening in Denver’s retail market? As the pandemic has persisted, retail has witnessed an increasing amount of bankruptcy announcements from national retailers in addition to local restaurant and store closures. Fortunately, the majority of retailers have received some type of financial assistance, and we have seen only a small percentage of retailers in Denver close permanently to date.
According to our research, direct retail vacancy increased to 7.1% in the second quarter, up 52 basis points quarter-over-quarter. The Colorado Boulevard/midtown submarket had the highest direct vacancy rate of 11.2% and the central submarket had the lowest direct vacancy rate of 5.6%. Total availability rose to 9% in the second quarter, up 80 basis points quarter-over-quarter and exceeding 9% for the first time since second-quarter 2018.
What is happening in Denver’s industrial market? Confidence remains high as the Denver industrial market has been less affected by the pandemic with tenants continuing to pay their rent and stay active in their space. Continuing its streak of positive net absorption for the 41st consecutive quarter, metro Denver’s industrial market recorded almost 1.3 million sf of positive net absorption in the second quarter. This is up 32.1% from second-quarter 2019 and pushes year-to-date net absorption to over 1.8 million sf, a 25.7% increase year over year.
What new practices are being put in place? With health being the top-of-mind priority, building owners and occupiers are striving to reopen their spaces in the safest way possible by implementing new health and safety protocols. These groups are going above and beyond their previous measures, especially for building common areas, to keep everyone who enters the building safe. Some of the measures taken to create a safer property include:
Increased frequency in cleaning high-touch surfaces including elevator buttons, handrails, common area seating, restroom sinks, faucets, towel dispensers and soap dispensers. Also, an uptick in the installation of touchless-operation faucets, water fountains, urinals and water closets.
Installation of hand sanitizing stations in all lobbies, elevators and stairwells.
Use of MERV-13 filters in all rooftop unit heating, ventilation and air-conditioning units, and systems monitoring to maximize fresh air intake while considering office comfort and keeping outside intake above recommended Centers for Disease Control and Prevention levels.
Installation of signage throughout the building to remind tenants and visitors to respect social distancing protocols in tenant spaces and common areas including lobbies, elevators, corridors and restrooms; wear your mask and wash your hands.
How do we move forward? While there still are many variables in play that could influence the strategy, our property management group is working tirelessly with clients to make sure they are as prepared as they can be in this fluid environment. During these past six months we have witnessed teams demonstrating extraordinary dedication during what has probably been the most challenging times they have ever faced.
In addition, we also have seen exceptional cooperation between tenants and landlords as they prioritize employee wellness first. Many tenants and owners are showing just how much they care about their constituents by being mindful of how other aspects of life have been affected. While many schools still are online, employers will have to continue to be flexible and, in turn, property managers will need to be prepared for the next wave of return to work when more systems – like child care and education – near a return to “normal.”
While the pandemic has disrupted nearly every facet of ordinary life, we find encouragement in these instances of cooperation and innovation, and they give us hope for the future of real estate and the Denver community.