On The Lookout For Long Leases

The tenant that takes a long lease on commercial real estate space has been the bedrock of the industry for decades, if not centuries. It is why commercial property has proved so valuable and is traditionally why banks are willing to lend on it.

Today, though, not so much. 

Even before the pandemic, the office world had been disrupted by the rise of flex operators offering shorter leases, the flexibility to increase or decrease space at short notice, and highly amenitised and good-looking workspaces. 

Lease lengths were dropping before the pandemic, but that trend was turbocharged in the past two years — the average length of new office leases signed in the UK in 2021 was just two years according to data from Re-Leased. 

Of course, companies are still signing long leases on new office space. But that data point shows office leases are now so short, they are already quasi-flexible contracts. 

Office owners are going to need to embrace flexibility, not just because it’s what companies want in their leases, but also because, in the hybrid work world, they will operate their businesses more flexibly as well. 

“What companies are realising is that different teams are going to have different needs when it comes to their working environments,” Humanyze President and co-founder Ben Waber said. “Through the pandemic, we’ve learnt that people are resilient and can adapt to changes in the way they work very quickly. Companies will start to change their hybrid work strategies not every month, but every quarter. So they’re going to need a lot of flexibility from their physical space to help them achieve that.”

A lot of that will come down to how tenants choose to fit out their own space. But office owners will need to offer space that can be easily adapted to attract companies in the future, Waber said. 

So, your tenant has chosen to adopt a hybrid strategy. But how is it going about rolling it out? The answer has big potential implications for the owners of office space. Read on …