There is no argument that the COVID-19 pandemic has significantly changed the work environment landscape. A vast majority of companies have incorporated a remote work strategy over the past 18 months. Many are still implementing these strategies or transitioning to a hybrid model. However, incorporating virtual collaboration into our day-to-day operations has not been the only seismic shift within the new work environment.
Many companies have elected to move their physical operations to better suit the new demands of office employees. This shift has resulted in positive suburban office trends and negative downtown trends. The following provides further insight to these trends, as well as recommendations for companies looking to create short-term flexibility as they reevaluate their new office environment.
As we attempt to forecast the future of office space, an interesting trend has been the migration to suburban markets. Nearly every key office indicator (vacancy rate, lease and sale prices, and vacant space absorption) has experienced positive growth over the past 18 months. This movement can be attributed to several reasons, but a leading reason is the shift in what is important to employers and employees. Priorities have shifted to free and ample parking, minimal shared spaces, more cost-effective rents, and closer proximity to employees homes, all of which are common characteristics of suburban office.
The growth in demand for suburban office has been contrasted by a decline in downtown office demand. Prior to the pandemic, there had been a massive influx of investment dollars to the downtown core. This investment included new construction as well as improvement to existing buildings, which often times was highlighted by new common areas upgrades of fitness centers, expansive lobbies and cafes.
Unfortunately, the past 18 months have rendered these types of spaces useless. It is unclear what demand will be for these types of spaces in the short-to-medium terms. This has made it difficult for employers to justify signing leases where they are paying for a portion of these common areas that their employees are unable to use.
Now is the perfect the time for companies to reevaluate their office space needs. For those companies still determining what the future of their office space is regarding remote or in-person work, there is ample amount of compelling office space within the downtown core.
For the first time in years, downtown landlords are offering more flexibility in terms of lease length, rent discounts, and lease concessions. We recommend an aggressive approach when looking for downtown space to ensure your company can adapt the changing work models. This aggressive approach can help bridge the gap between current pandemic office needs and long-term office goals.
For those companies targeting suburban office opportunities, there is still a decent amount of inventory in the market. However, with high levels of demand continuing to push rates up, there is less and less room to negotiate basic lease terms. For suburban companies struggling to identify their long-term office needs, we recommend targeting higher vacancy properties where growth, or downsizing, can be accommodated within the same building. […]