Colorado-Real-Estate-Journal_318723

Page 10 — Office & Industrial Quarterly — December 2022 www.crej.com OFFICE — TENANT TRENDS 2023 CoreNet Colorado Announcement Please mark your calendars and get ready for... January YL Technology Tends in CRE February Member Mixer 2023 Kickoff March DU Student Social April Property Tour May Future of Cherry Creek June YL Event July Property Tour August Annual Bocce Tournament September Golf Tournament Innovation Forum October Property Tour CORENET Global Summit Denver November Speed Networking- Student Event December Member Only Holiday Party CONNECT | GROW | LEARN | BELONG Reach out to Chris Legner at chris.legner@agilquest.com for questions regarding sponsorship and to Michelle Martinez at michelle.martinez@vari.com for questions regarding membership. L ike many others, our busi- ness of exclusively repre- senting tenants has changed significantly over the last three years. What began with the COVID pandemic and the rapid adoption of widespread remote/ hybrid work is now compounded by shifting office space usage and relevance, rising interest rates, fluc- tuating rental rates, supply chain constraints, labor shortages, and elongated timelines related to con- struction and successfully negotiat- ing a real estate transaction, just to name a few. The good news – change is good. We see this evolution as positive because it is allowing countless companies to gain valuable per- spective, realign with their greatest asset – their people – and strategi- cally reset their assumptions as to the real estate needs of their orga- nizations for the future. With these changes in mind, below are three emerging trends that all companies should keep their eyes on in 2023. n Rising cost of capital. No secret to anyone, the cost to borrow capital has increased significantly. In recent years, building owners raised capital with relative ease and attractive long-term economics. That’s especially the case in mar- kets like Denver, where real estate values have increased significantly, and the upside was clear and obvi- ous. This trend is changing. In 2023, as capital continues to become more difficult to borrow, tenants need to know more than ever with whom they are negotiat- ing. Property own- ers in the market have varying mechanisms of funding their hefty transaction costs – construction allowances, free rent, moving and cabling allowances, capital projects and building reno- vations. Owners who are subject to volatility in the current interest rate environment will be challenged to remain com- petitive in the deal-making catego- ry. If their borrowing ability changes significantly between the onset and completion of negotiations, it may make it more difficult for them to fund the transaction costs on which they originally agreed. Considerable time and resources are invested into putting a real estate transaction together. Know- ing your prospective landlord part- ner and their ability to perform on certain aspects of an agreement will become very relevant in 2023. Build- ing owners with the ability to fund transactions in cash, or equivalents, should be using this as a selling point in their daily pursuit of gain- ing the attention of their valuable tenant partners. n Elongated timelines. Transaction timelines are not what they once were. Every specific lease process has its own nuances. However, one thing you can count on is that the process from start to finish will take far longer than you expect, or at least far longer than it did prior to the pandemic. The timeline for this process has nearly doubled from initiating a project, to nail- ing down a proj- ect team of key stakeholders and vendor partners, to building con- sensus and strat- egy internally, to evaluating the market and the numerous options available, to drafting and negotiat- ing term sheets with multiple prop- erty owners, to receiving budgetary pricing from backlogged general contractors and subcontractors, to negotiating a lease document. Additionally, the C-suite is more involved in the lease process than ever before. This is due to changes in assumptions since 2020 about the need for a physical office space. Today, the C-suite needs to make sure all workplace options have been vetted and explored as part of the pretransaction planning pro- cess. This nuance, coupled with elongated constructed timelines and volatility with specific mate- rial delivery, has changed how we approach lease expirations. The moral of the story is to start the process early – much earlier than you think. n New office experience. Up until this point, tech companies have been slower to return to the office, though some of the largest tech employers have recently resumed firming up their return-to-work pol- icies. Many of our local technology clients are also planning to provide clearer office-attendance guidance in the new year. At the same time, they are building space that looks completely different than before. We are hearing more statements about creating workspace that aligns with an “airport lounge,” “employee clubhouse,” “innovation hub” or “center of excellence,” as opposed to the functional language of the past like call center or office. We’re seeing space take shape that celebrates a company’s brand and caters to the experience of employ- ees, their families and even the greater community. The resurgence of tech space looks much differ- ent than it did, and its utility has evolved. The next iteration of the office is centered around people coming together and enjoying themselves and their colleagues, while also facilitating heads-down work when necessary. Again, we see this change as a good thing. To summarize the key takeaways for tenants evaluating a lease in the year ahead: Start early, understand the players in detail and be proac- tive with designing a space that elevates your employee experience. With these trends in mind, there’s ample opportunity to capitalize on as a tenant in 2023. s Ryan.Link@cbre.com Harrison.Archer@cbre.com Start early, be proactive in face of tenant trends Ryan Link Senior vice president, Advisory and Transaction Services – Occupier, CBRE Harrison Archer First vice president, Advisory and Transaction Services – Occupier, CBRE