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Green shoots are beginning to emerge for the office market, with many tenants starting to consider long-term leases — though most firms plan to revise workplace arrangements when the pandemic eases.
Nearly 60% of tenants said they are now in the market for office leases at least five years long, according to a survey of 400 accounting and financial professionals and commercial real estate executives run by lease optimization software firm Visual Lease. Half of the respondents reflected the interests of tenants, and the other half represented landlords.
Those leaders on both sides of the negotiating table expect office leasing to accelerate next year, despite the uncertainty over how those offices will be used. Sixty-five percent of landlords said they expect tenants to add space to their portfolios next year, while 70% of tenants said they plan to expand their space in the coming year.
Similarly, 75% of landlords said they expect rents to return to or exceed pre-pandemic levels next year, and 61% of tenants also anticipate a return to pre-pandemic office rents.
Even as many companies consider taking long-term leases, almost all tenants — some 93% — said next year's real estate strategy is not a permanent one, and it will be reconsidered after the pandemic is over.
“The commercial real estate industry has dramatically changed over the past 19 months,” Visual Lease CEO Marc Betesh said in a release. “Both landlords and tenants are uncertain of what shifts and trends are here to stay, which has made planning ahead more difficult than ever before.”
Remarkably, 100% of landlords surveyed said they had tenants request modifications to leases as a result of the coronavirus, and 99% said they have changed their agreements moving forward, including changing building rules and regulations and adding force majeure clauses.
Even with the renewed confidence in expansion, some 37% of tenants admitted to still being behind on rent, and 61% admitted they had fallen behind on rent at some point during the pandemic.
Savanna founder Chris Schlank, whose company owns 7M SF of New York City office buildings, said on Bisnow’s podcast this week that unpaid rent is still an issue in the market.
"A lot of tenants in our office buildings got a lot of PPP money, never gave us rent,” Schlank said. “A lot of people didn’t pay rent. You’d be surprised the moral compass that went completely upside down.”
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