With office space vacancies running as high as 20 percent in some areas of Summit County, the sector remains the weakest link in commercial real estate, according to a recent survey by the assessor’s office.
New tech advances such as 4G, HTML5 and i-Choose-your-weapon-devices create the ability for businesses to reduce or erase staff altogether, notes Jack Wolfe, a Breckenridge-based real estate broker.
Wolfe asks a rhetorical question many business owners seriously pondered through the downturn: “Do we really need that extra person?
“Whereas I previously might have had an administrative assistant, I can take care a lot of those tasks through technology,” he says. “It’s almost easier.”
Technology was sure to continue to replace people in the workplace, even without the pink-slip flurry of the past four years. But hard economic times probably sped up the disappearance of water cooler chats — and they closed doors completely when downsizing wasn’t enough.
In mountain resort communities with economies heavily steeped in construction trades, nothing but dust and aisles of cardboard quarter-walls were left behind in empty offices as builders, architects and general contractors vanished after the housing crash.
Summit County’s largest office spaces were chiefly occupied by development companies, and once the housing market dried up a lot of space became available, says Frisco-based commercial broker Darren Nakos.
“And there really is little to no demand,” he adds.
Commercial space vacanciesThe countywide office space vacancy rate is about 12 percent, according to the assessor’s report conducted in June. But core commercial areas such as Airport Road in Breckenridge — at 19 percent vacant — are higher. Nearly half of downtown Dillon’s commercial space is designated office. It’s 19 percent vacant, according to the report.
|Breck Airport Rd||20%||—|
|Frisco Summit Blvd||15%||—|
|Frisco West Main||17%||—|
|Source: Summit County Assessor's Office 2013 Commercial Vacancy Study|
Roughly one-fifth of the county’s commercial real estate is designated office space, and overall vacancy rates are close to a healthy level at 8 percent.
“A balanced market is going to be closer to five to seven percent, and I think you really have to look at it segment by segment,” Wolfe says. “The office is the real obvious one to most of us who are in the business, what’s really creating a problem there.”
Staff downsizing and business closures are not the only contributor to diminishing demand for offices. A work-at-home trend that started before the recession continues to soar in multiple industries, from web design to data entry.
oDesk, the world’s largest online freelancing site, saw a 470 percent spike in jobs during the recession, according to CEO Gary Swart, who cited the figures in a YouTube interview.
One of several online sites that let businesses hire professionals over the web, oDesk handles the fee and even offers its providers health insurance. The contracted employee works on their own software from home — or a coffee shop or chairlift — and are guaranteed pay through PayPal.
Since the mountains offer desirable quality-of-life communities, why commute to an office when you can change out of your GoreTex right into your pajamas and still log a day’s pay?
In response to the lack of demand for office space, local developers are increasingly converting cubicles and conference rooms into kitchens and baths, according to town planning staffs.
Frisco Community Development Director Jocelyn Mills reports multiple requests by developers to change property use to apartments in all areas of town. With the building industry at a stand-still, conversions are taking up a majority of the department’s time.
The town of Frisco has progressively tried to gain more affordable housing through these requests, according to Wolfe, who predicts demand among mountain resort home buyers to shift from McMansions to smaller but still well-appointed living spaces. And of course, a home office with a view or that’s within walking distance to the slopes is a big bonus.
A ski condo is going to fetch much more than the going rate of about $15 per-square-foot for office space, so developers are keen to make concessions to get out from under certain projects, Wolfe says.
That’s not to say the market for ski condos is booming. But agents say demand for those will return, while the changes in how people work will likely remain even after an economic recovery.
Summit County has its share of “For Rent” and “Space Available” signs in its commercial districts, but overall vacancy rates are better than national averages.
The National Association of Realtors reports that while all commercial real estate sectors are on the upswing, office space vacancy is predicted to decline by less than half a percent by early next year, to 16 percent.
Mountain communities like Summit County are in a better position than many other areas of the US in terms of office space rentals, but Nakos says the sector will remain weak with low lease rates for up to two years.
“The nature of this market is that there’s just not larger companies coming in and setting up shop,” he says. “They’re either doing it from Denver and having a small satellite office up here, or working from home and they can’t justify the cost.”