Leasing Office Space Has Changed. Have Office Brokers Changed Too?
Office leasing has changed dramatically in the past decade, and that change was turbocharged by the shifts brought about by the coronavirus pandemic. The market has evolved, but has the job of leasing office space changed as dramatically?
Leases are shrinking, subleases are booming, and business as usual is over. But ask office brokers and those involved in leasing space, and while what it takes to be a top office broker has changed, that change has been coming for a long time. Some of the old skills of networking are still useful, but no longer invaluable. In their place, creativity and consultation are key.
NAI Global President Jay Olshansky believes the industry is in for a shift, and won’t go back to normal for the foreseeable future. Trying to get rid of 25K SF in this environment, when there are millions of square feet available, means being a lot more creative, the New York-based head of the massive independent broker network said.
“Last week, 30% of people nationally were back in the office, around 40-50% in markets like Dallas and Houston and 18% in New York,” he said. “Normal is 80 to 90%. We have a long, far way to go before it’s normal.”
Glenstar co-founder Micheal Klein, who oversees the developer and operators’ properties in Dallas and Chicago, doesn’t believe the way the market operates has shifted that much pre- and post-pandemic; the industry is still about relationships, reading trends and figuring out what the client wants.
“The way you prospect may change, and tenants may want different things, but it’s not glacial shifts,” he said.
He believes companies, and the market, need six months to a year to sort out operations as the return to work picks up and that same amount of time to consider how it impacts their work environments.
Chicago, where Klein works, is, like New York and a select number of larger, denser markets, seeing a drop in demand. Chicago has 6M SF of sublease space on the market, Colliers data showed, so there’s lots of tenant power in negotiations; short-term flexibility and shorter lease terms are possible, landlords are building more spec suites to meet tenant needs (and a drastic reduction in corporate capital expense accounts), and the hottest segment of the market is sublease space below 5K SF.
But the real change in the industry isn’t the short-term shifts in lease length. What’s really changing, and has been for years and decades, is that tenants want bigger and more useful amenities; the health club instead of a staid fitness center, the coffee bar instead of a lunchroom.
Colliers’ Principal of Occupier Services David Burden said the outreach is what has changed the most in the tenant rep business. Twenty years ago, he’d spend hours cold-calling prospective clients, whereas today he’s focused on social media and LinkedIn, and taking a more consultative approach, focused on workplace strategy consulting and auxiliary services beyond brokerage services. The industry has consolidated and stabilized behind the big four (Colliers, JLL, CBRE, Cushman & Wakefield).
“Information used to be gained through spending time on the phone with other brokers,” he said. “Today, market info is more readily available through technology, so it’s more about a conversation on how real estate supports the business. Brokers are more business problem-solvers than strictly knowledgeable about the market.”
Even for Olshansky, who sees a long road to recovery, the path is only two to three years long.
“I remember the ‘90s, when people said we have too much office space, and after 9/11, when people said they’d never fly again, and the financial crisis of 2008/9, when so many people were losing their jobs, and in a few years, it kind of recovered,” he said. “I think in a few years, we’ll say Covid was terrible and we got through it and it took a few years to get back.”
But brokers and other real estate analysts argue about how long the period of flux will last, and how different the job really is, versus the temporary market fundamentals.
Burden said it’s all going in cycles between companies seeking short- and long-term leases. Right now, they’re looking for flexibility, often sublease space at a big discount for the shorter term. Conversations with tenants who recently signed office leases in Chicago found a mix of traditional, and Covid-era concerns informing their actions.
“Offices are only being used 60-70% during the day anyways,” Burden said of the reality of reopenings. “The net change to everybody not being in the office isn’t going to be all that different.”
“We always could have worked from home, were we, pre-pandemic, just doing things drastically wrong?” Klein said. “When we come back, it’s going to look somewhat similar, with little tweaks around the edges. It’s still kind of early to understand where things will end up.”