CEO Roundtable: NoCo real estate pros still wondering when workers will return to offices

As Northern Colorado climbs out of the COVID-19 pandemic doldrums, local real estate experts are left wondering when workers will return in person to the office and whether the virus has caused a permanent shift in commercial real estate markets. 

Similar concerns exist regarding the retail sector, and while the residential sector is red-hot, there are significant headwinds related to the rising cost of land, water and construction materials, Northern Colorado real estate pros said Tuesday during BizWest’s virtual CEO Roundtable.

Citing an internal survey, CBRE broker Peter Kelly estimated that about 90% of workers will be back at work in some fashion in the next year.

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“In Northern Colorado, it feels like there’s some enthusiasm” about getting back to the office, he said.

MacMillan Development CEO Stu MacMillan and NAI Affinity CEO Ryan Schaefer agreed that many of the workers returning to the office will do so in a hybrid model in which some work days will still be remote.

If 10% of the nation’s workforce doesn’t return to the office, that means that roughly 800 million square feet of office space may be underutilized, resulting in far less demand for new spec offices for the foreseeable future, Schaefer said. 

Employees who return to the office will be looking for different things from their landlords, reversing recent design trends such as large communal meeting rooms and interior open spaces, Dohn Construction Inc. chief financial officer Connie Dohn said.

Neenan Co. vice president Shawn Sullivan agreed, noting that tenants may now put a premium on outdoor congregation spaces.

McWhinney Real Estate Services Inc. president Peter Lauener said he expects tenants to demand more per capita square footage for returning employees, which could somewhat offset the impacts on commercial real estate of companies that give up office leases in favor of remote work.

Like the shift toward remote working that was gaining steam prior to the pandemic, COVID-19 has “accelerated the trend of demise of the retail store,” Dohn said. 

According to Lauener, changes in shoppers’ behavior will result in developers focusing more on experiential retail projects with dining and entertainment options rather than traditional malls or shopping centers. 

Despite the sector’s struggles, Waypoint Real Estate managing partner Josh Guernsey said neighborhood retailers are weathering the storm better than large, regional shopping centers, and Livingston Real Estate & Development CEO Tom Livingston remarked on the resilience of retail service operations such as salons. 

While the retail sector remains shaky, investment dollars haven’t completely dried up, Cushman & Wakefield vice president Jared Goodman said.

“I still see a lot of demand on the investment side for retail space,” he said. “There’s still money out there chasing that product.”

The Northern Colorado residential real estate sector is in an interesting position, with sky-high demand from buyers but little ability by developers to put new homes on the market.

A major supply-side factor is access to water rights, panelists said.

‘“We don’t have the water supply,” Re/Max Alliance owner and broker Dennis Schick said. “It’s a developer’s nightmare” to buy residential lots and fail to secure water rights.

Construction costs, namely lumber, are increasing and challenging developers’ ability to make projects pencil out, Dohn said.

Development is further hampered by understaffed municipal planning departments that have been slower to approve permits than prior to the pandemic, Pinnacle Consulting Group CEO Chad Walker said.

“As municipalities are struggling to get themselves back on track … getting building permits is challenging with people working remotely,” he said. 

Walker urged local governments to take a proactive approach to working with developers to bring new housing projects online. 

Builders “are gravitating to communities that are innovating the process of public-private partnerships,” he said. 

The BizWest CEO Roundtable is sponsored by Plante Moran, Elevations Credit Union and Berg Hill Greenleaf Ruscitti. Sponsor attendees Tuesday included Berg Hill marketing director Ashley Cawthorn, Elevations vice president Dennis Paul, and Plante Moran’s Josh Billiard, Sean Nohavec, Kristin Turner and Rose Montgomery.

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