The Future of Commercial Leasing: Adapting to Changing Tenant Needs
Specializes in providing actionable insights into the commercial real estate space for investors, brokers, lessors, and lessees. He covers quarterly market data reports, investment strategies, how-to guides, and top-down perspectives on market movements.
Even though the global pandemic officially ended over a year ago, its effects are still seen within the world of commercial real estate (CRE), especially the urban office leasing sector.
What was first considered a temporary situation still affects CRE owners and managers across the nation. Working at home has become the norm for millions, and while this has mainly affected the office sector of CRE, few have been unaffected.
As the commercial leasing landscape continues to evolve, this transformation has created and continues to create new challenges for landlords and property owners alike.
Here, we'll explore these challenges, their causes, and possible solutions for attracting and retaining tenants.
First, let's look at the ways the CRE leasing scene has changed since the official end of the COVID-19 pandemic in May 2023.
The Death of Nine to Five
The working habits of millions of Americans have changed drastically in just four years. For decades, staff spent hours commuting to work to join their workmates in an office environment. Office dress codes often meant that workers maintained separate weekday and weekend wardrobes.
After pandemic-based quarantines initially forced many employers to allow their staff to work at home, medical experts realized that the pandemic would continue to close down offices and businesses for an unspecified time.
This resulted in businesses assisting their staff with increased productivity during quarantines, which were quickly renamed “remote offices.”
Any doubts about decreased efficiency gradually faded as employers began to realize that the workforce, no longer coping with expensive commutes and related stresses, was becoming more productive in the remote environment.
Today, long commutes are no longer the norm, while teleconferencing and video calls are weekly occurrences. Casual attire is accepted.
In addition, the past years have seen businesses relocating to areas that enabled them to be more profitable. Thousands of workers' careers took them to popular, business-friendly states such as Texas and Florida.
However, these two factors—remote work and relocation—created major challenges for many CRE landlords.
Out to Lunch…Forever
While many businesses required staff to return to the office, others saw an opportunity. Not only were remote workers more efficient (and happier), but the company could also save money by eliminating or reducing their office rent bills.
As more companies continue to trade traditional longer leases for flexible options, demand is growing for agile solutions.
An office landlord may have to make one or more of these available to new tenants:
- Changing their square footage needs during a lease's term, according to their staff requirements;
- Changing to flexible lease options that allow them to vacate without penalty; or
- Choosing office spaces modernized for “gig workers” by converting to updated, worker-friendly environments.
Let's look at some strategies used by landlords and CRE owners who have successfully adapted their existing properties to attract today's non-traditional workers and their employers.
These strategies require two major changes. Not only are flexible leases in demand, but remodeled workspaces are also driving more tenants to these properties.
Let's look at how landlords can go from traditional to trendy first.
From Cube Farm to Destination
When employers began issuing “Return to Work” notices to their staff, many encountered resistance. However, many recognized the money-saving advantages of remote work and ended up offering their staff a hybrid arrangement.
Hybrid staff workers are generally required to come into their offices from one to three days a week.
To further encourage a return to the office, companies began to seek commercial office spaces that prioritized their workers' comfort and efficiency.
This launched several trends, such as:
- Creating a workplace that offers an ideal atmosphere for productivity. Office interiors with inviting layouts, natural lighting, and upgraded kitchen and break rooms enabled employers to offer a healthier work environment.
- Workplaces that recognize different working styles. While some staff enjoy being closer to their team members, others may require solitude and quiet to produce their best work. This contributed to the appearance of “quiet booths” in some offices.
- Offices that pique workers' imagination and encourage creativity. This includes furniture that continues to trend away from rows of desks to a more welcoming layout with couches, armchairs, bistro tables, and even an occasional fireplace.
- Added security features. While companies implement their own VPN protection and clean desk policies, you can assist by providing office layouts that deter unauthorized access, together with access systems that deter unwanted visitors.
Today's enterprising landlords can encourage new leases and tenants by taking note of these trends and upgrading their vacant spaces, together with user-friendly leasing agreements.
Here are some examples you may adapt for future tenants.
Leasing Options for Hybrid Offices
While longer NNN leases have been a CRE industry standard for years, landlords may need to adapt to a considerably more competitive leasing environment.
Consider adding one or more of these options to your current leasing options:
- Shorter lease terms, with or without incentives to renew at the end of the term;
- Expansion and contraction options to attract new businesses that are unsure of their future office requirements; and
- The ability to sublease a section of the original office space.
Landlords who ensure that their policies and contracts evolve to serve prospective tenants will find it easier to build lasting, mutually rewarding relationships with today's office management.
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