Adapting to Changing Circumstances … 2020 Market Update

As appeared in… OCTOBER 7-20, 2020 Spotlight Adapting to changing circumstances … 2020 market update hen I was in business decide the W school, many (many!) best course of years ago, my strategic planning actions. professor drilled into us one Companies thing that clearly sticks out in grappled with my mind: “In business and in what to do life, you have to adapt or you with their won’t succeed.” Wow, that advice employees, seems more relevant now than while land- ever. Dan Meitus lords and To give some perspective, President and CEO, property man- many of the major broker- Elevate Real Estate agers scram- Services Inc. bled to figure ages, such as CBRE Group, Incoming 2021 JLL, Cushman & Wakefield, Denver Metro out how to Newmark Group and Colliers BOMA President adapt to make International Group Inc. each their build- reported drastic drops in rev- ings safe and enues and income due to the secure. Businesses complied with global pandemic. “The U.S. the stay-at-home orders, and office market recorded 14 mil- building managers implement- lion square feet of occupancy ed new COVID-19 procedures losses in the second quarter, the around increased cleaning and disinfecting, security, signage, steepest drop since the second mask-wearing, social distancing quarter of 2009 during the Great and health screenings. Recession,” JLL reported in its Havey Productions “One thing that has clear- U.S. office outlook. ly changed is how landlords In Denver alone, there was communicate with tenants – a 43.1% year-over-year drop in Google and Amazon led the Landlords realized that the decision-makers saw less value they have to be more flexible. leasing activity in the second way. Technology like Zoom and long-term relationship was more in physical space, and 51% will Furthermore, the role of proper- Teams helped addressed the fun- important than the revenue reassess their space needs for the quarter, according to the real ty managers in communications damental “3 C’s of Teamwork” adapted, but it varied greatly future. Of those, 60% likely will estate research firm Savills, the is more important now than (collaboration, communication depending on the type of real reduce their footprint. Similarly, lowest activity level in 15 years. ever,” said Dave Hewett, exec- and cooperation). However, com- estate. For example, one of my Gensler, the global design and Vacancy in Denver grew to utive managing director, Olive panies soon realized there was retail owners (in her eighties) 13.6%, according to CBRE, with Real Estate Group and BOMA engineering firm, said recently a negative impact without the with several restaurants that 33% increase in available sub- Fellow. at the CREJ Office Summit that lease space. (DBJ 7/20/20) Over the longer term, the in-person interaction to mento- were either in trouble or up 70% of the tenants surveyed As a result of COVID-19, there issue of ensuring the health and ring and motivating employees for renewal, wisely said “Dan, want to come back to the office were a number of significant well-being of tenants will become and, most importantly, main- no one wants to negotiate a as soon as it is safe, but definite- impacts to different sectors of more complex. For both existing taining their unique company lease renewal when they don’t ly with some changes. Specific business, such as employers and and new buildings, property cultures. even know what tomorrow will results depend on factors like the employees, landlords and ten- managers and landlords will be Working at home did not bring.” Other owners were not size of company, industry and ants, etc., that directly impacted looking at technologies and prod- provide the “serendipity of the so forgiving. culture. the office market. Starting in ucts that address temperature office” environment that contrib- There is some data on the The impact of the pandemic mid-March, there was an ava- checks, indoor air quality (IAQ) – utes to the vibrancy, productivity tenant perspectives on the will not be fully realized for lanche of national, state and including Bipolar Air Ionization, and excitement of being around future of office space. At the some time in the commercial local information from a variety MERV (Minimum Efficiency other colleagues. As background, BOMA International conference, real estate market. One thing of sources. Organizations, like Reporting Value), HVAC filters some service companies spend Brightline Strategies present- that is clear though is that busi- BOMA and Downtown Denver and outside air intake as well up to 80% of their budgets on ed market research conducted nesses, architects, engineers, Partnership struggled to keep as touchless environments for human capital, while only about among hundreds of commercial landlords, brokers and property up and, in some cases, take a building entry, security, elevators, 5% on their rent, demonstrating office users and tenant deci- managers are all being asked to leadership role for their constit- bathrooms and lighting. the relative importance of happy sion-makers on how the COVID- adapt more now than they ever uents. Daily briefings from the As “working from anywhere” employees versus saving a few 19 public health emergency before. Capital markets, new Centers for Disease Control and became the new normal, com- dollars by working from home. impacted their businesses and developments, lease terms and, Prevention, White House and panies found ways to get work As buildings became empty, attitudes toward their workplace of course, work environments the media overwhelmed many done with everyone at home. tenants asked landlords for rent environments. In their survey, will need to be more flexible to of us in the industry trying to Larger tech companies like abatement and rent deferment. 60% of tenant’s real estate accommodate this new normal. n.

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