One victim of the COVID-19 pandemic that might have missed initial diagnoses is the office space rental market in Durango – fortunately, brokers around town say the patient will recover, though recovery to full health might take longer than anyone would want.
“We have seen some increased vacancy rates based, obviously, on all this occurring this year as part of the COVID. But of course, COVID created a lot of opportunities for individuals and their employers getting to work from home,” said John Wells, owner broker of the Wells Group.
Wells said small offices, where space is 500 square feet or less, were the first to feel the pinch of COVID-19 because their leases are often for shorter durations than larger offices, but he added that the small offices will likely be the first to recover, with inventory absorbed more rapidly than larger spaces.
“Through even March of this year, if you look at small office spaces, they were pretty filled up,” Wells said. “I might be a person already working from home who just wanted a small office space away from the house, and because of the economic uncertainty and their ability to give notice quickly – sometimes these spaces are on a month-to-month basis – they were able to shrink back pretty quickly in late March, when we got hit.”
Already though, Wells sees signs of a recovery in the small office space market – offices ranging in size from 100 square feet to 500 square feet.
With children learning from home and more telecommuters moving to Durango, Wells said the demand for small office space is picking up.
“Some people have found with both spouses working from home and maybe with kids who are learning from home, they realize they need more office space, and some telecommuters who have bought a place out in the country may not have realized what kind of internet limitations they would be facing,” he said.
Larger office spaces may take longer to lease because of structural changes already in play before the arrival of the novel coronavirus, and the pandemic has only accelerated the trend, he said.
Employers with 4,000 square feet learned during the pandemic they could do with less space – telecommuting didn’t decrease productivity and a certain number of employees prefer working at home.
“Some of those employers may have discovered they were still operating efficiently, and they didn’t need the cost of 4,000 feet,” he said. “Maybe they just need 1,000 or 2,000 square feet, some conference rooms and meeting rooms, and then a certain percentage of their employees are going to want to continue to work from home. They realize they don’t need all that office space.”
The one variable that might help fill office space, Wells said, is that Durango’s total population is increasing with people fleeing urban centers.
Sooner or later, newcomers will be adding demand for commercial office space, he said.
Scott Kurlander, a broker with Keller Williams Realty Southwest Associates, provided data from Durango’s Multiple Listing Service that showed 58 retail and office space properties had been leased through Oct. 26 of 2019, but as of 2020, only 40 retail and office spaces on the market had been leased as of the same date in 2020.
In addition, the numbers showed the median rent for the 58 properties leased in 2019 was $1,212 compared with a median rent of $712 for 2020.
As of Oct. 26, 70 office and retail spaces were up for rent in Durango’s MLS database.
“You can make what you want of statistics. You can slice them any number of ways,” he said. “We’re a small pond, and people make a big deal saying, ‘We’re seeing a 50% increase in sales.’ And you find out, hypothetically, you’re talking about Bayfield, and it means sales went from 12 to 18. Yes it’s a 50% increase, but give me a break, you’re still talking about six sales.”
While the numbers, Kurlander said, don’t look good, he’s not overly concerned.
“I’m not doom and gloom. I’m showing properties. It’s not a surprise we have larger office spaces available. People are realizing they don’t need huge offices, but eventually, the spaces will be leased, some will be repurposed,” he said. “The market will adjust. It just may take some time for everything to play out.”
Despite the increase in office space in the era of COVID-19, Kurlander still maintains Durango could use more office space if it comes with light industrial shops and warehouses that could accommodate businesses like plumbers, electricians and homebuilders.
“My biggest complaint is that the service industries, the plumbers, the electricians, the people that we need to keep our community running, can no longer afford the rents here,” he said. “And so where are they renting? Right now, they’re in Bayfield on Clover Drive. They’re in the Bayfield Tech Center, and that’s because it’s more affordable. They’re renting in Mancos and Aztec. It’s a situation with the cost of real estate here, and rent is pushing those service-oriented businesses out.”
Phil Schoon, also a broker with Keller Williams, said making any kind of prediction beyond 60 to 90 days is always tricky, perhaps even reckless.
But he added: “With that being said, I do think there’s a possibility – because any business needs to be continually evaluating its overhead, its assets, its liabilities – there will be changes in the office market.
“So I think it’s very likely that at some point, some of these companies will certainly have to adjust their business models. And that could equate into having smaller places – maybe not having even the same location,” he said. “People may realize they don’t need that highly visible point, and maybe they can relocate to Bodo Park or some other place where they can lower their rent.”
parmijo@durangoherald.com
