Since the initial impact of coronavirus was first felt in March 2020, commercial real estate has experienced an unprecedented season – from navigating state-wide shutdowns to slow phased re-openings.
Austin and Denver, two markets in which SideCar PR maintains a dedicated presence, are no exception. Both cities had reached record or near-record construction and leasing levels as recently as February.
As tenant expectations shift, submarkets strengthen and workplace needs evolve in the wake of COVID-19, it’s important to understand how Q2 numbers will help firms in these markets survive the short-term and thrive as recovery hits full swing.
Let’s take a look.
Despite slowdowns in almost every facet of the commercial real estate industry, Denver’s industrial outlooked remained strong. In fact, the market sector saw positive net absorption of nearly 1.3 million square feet during Q2 2020 as demand continued apace for manufacturing, warehousing and logistics space. Industrial construction in Denver remains active with more than 6.6 million square feet of space currently under development.
The same goes for Austin, which marked its 24th consecutive quarter of positive net absorption in the industrial sector. This growth, similar to Denver’s, was driven by strong tenant demand and a robust development pipeline totaling approximately 1.2 million square feet of active construction.
Industrial owners and developers remain cautiously optimistic. According to SideCar PR client Etkin Johnson Real Estate Partners, whose Ryan Good spoke with Bisnow prior to COVID-19 in February 2020, “We’ll find out if demand keeps up with supply.”
With additional industrial projects expected to deliver in both markets before the end of the year, and into the next, all signs point towards continued growth in this sector.
If any immediate impact on the commercial real estate market has been felt, it’s almost certainly in the office sector.
Both Denver and Austin registered negative net absorption for the first time in 13 quarters and 37 quarters, respectively, in reaction to the rapidly evolving role of the workplace in our daily lives. Sublease availability also experienced a sharp uptick in Q2 2020 – 33.3% quarter-over-quarter growth to 3.4 million square feet in Denver – as companies prioritized their payroll and other operating expenses over maintaining their office leases.
Some experts speculate that Austin, along with other popular cities, could become a tenant’s market over the coming months, especially as more office space comes online in future quarters. But just because we’ve temporarily traded cubicles and desks for home offices or kitchen tables, doesn’t mean the workplace is gone forever. It might just look a little different.
While millions are back to work and many others can once again enjoy a meal or shop they love, the retail market continued its downward slide, with Austin and Denver both posting negative net absorption for the quarter, much like other markets across the country, including nearby Colorado Springs.
Although COVID-19 resulted in state and local stay-at-home orders and subsequently the closure of many restaurants and retailers, the sector began to reopen during Q2 2020.
What’s most encouraging and inspiring, though, is the placemaking efforts taking place around the country in an effort to bring people back together in new, albeit different, ways. With capacity severely limited, the City & County of Denver allowed expansion of restaurant dining rooms into parking lots or, in the case of our home street and client Larimer Square, onto a newly closed pedestrian street. What was once a through-street is now home to a 400-foot mural from local Denver artist Pat Milbery. Live music plays in the square every day as diners enjoy a meal illuminated by the famous lights of the Square under a sign that reads ‘Together Starts Here’. It almost feels normal. Maybe even better.
It’s going to be a long road, to be sure, but there are signs that these markets – that these communities – will rally. What they have in common, from economic strength pre-pandemic to a undeniable entrepreneurial spirit, will continue to serve all of us through the trials ahead.
Sources: Denver Industrial MarketView Q2 2020, Denver Office MarketView Q2 2020, Denver Retail MarketView Q2 2020, Austin Office MarketView Q2 2020, Austin Industrial MarketView Q2 2020, Austin Retail MarketView Q2 2020