Encouraging progress with coronavirus vaccines sent stocks surging in early November and offered a light at the end of the tunnel for what a potential recovery could look like. But with cases at an all-time high during the recent resurgence, the winter season here and much uncertainty still on the table, what will office leasing look like this year and beyond?<\/p>\n
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READ ALSO:<\/strong> Office Absorption to Recover in 2022, NAIOP Predicts<\/a><\/p>\n To find out, we spoke with brokers and other commercial real estate experts, who weighed in on where we are compared to last year, and what they expect from 2021.<\/p>\n Ian Anderson, Senior Director of Research, CBRE<\/p><\/div>\n Since the onset of the COVID-19 pandemic, office leasing activity has fallen significantly across the U.S. According to CBRE, during the second quarter alone, nationwide office leasing fell by 21.5 million square feet.<\/p>\n In New York City\u2014one of the nation\u2019s largest office markets, with more than 500 million square feet of space\u2014 leasing volume in the central business district dropped to historic lows<\/a>. During the first nine months of 2020, office space hit roughly 15 million square feet. By comparison, 43 million square feet was leased during 2019, according to data from Colliers International.<\/p>\n \u201cWe are on pace for the full year 2020 to have more than a 50 percent drop-off year-over-year and be the slowest year of leasing volume in Manhattan so far this century,\u201d Frank Wallach, senior managing director of research at Colliers, said late last year. \u201cThat scale of drop-off is not something we\u2019re accustomed to, even in markets of economic fluctuation.\u201d<\/p>\n Not only is leasing volume down, but the length of deals has shortened, renewals have taken a much larger share of overall activity, and the sublease market has jumped to new highs, with JLL estimating a potential 150 million square feet of availability by the end of 2020, according to a third-quarter analysis.<\/p>\n Matthew Leon, Executive Managing Director, Newmark<\/p><\/div>\n As market fundamentals shifted dramatically, many tenants\u2014while also more concerned with health and safety than ever before\u2014looked to capitalize on favorable conditions.<\/p>\n \u201cTenants are more aggressive than they\u2019ve ever been,\u201d said Ian Anderson, a senior director of research at CBRE.<\/p>\n Owners have become increasingly flexible and accommodating, making favorable, cost-effective improvements to their buildings\u2014such as installing better air-handling systems or integrating UV lights designed to kill viruses\u2014to attract tenants.<\/p>\n READ ALSO:<\/strong> ULI, EY Predict \u2018Ecosystem\u2019 of Workplaces<\/a><\/p>\n \u201cFor the first six months of the crisis until September, owners were holding onto a lot of hope it would pass,\u201d said Anderson. \u201cThey were being pretty stubborn, and you didn\u2019t see much flexibility in terms of rents, they still felt they had a lot of leverage with tenants. But that\u2019s really started to falter over the last couple months.\u201d<\/p>\n Matt Leon, executive managing director of commercial leasing at Newmark, said he hasn\u2019t seen many landlord concessions in Manhattan. What he has seen tenants look at is the opportunity to upgrade buildings, to the extent that it will help bring their employees back to the office<\/a>.<\/p>\n \u201cA lot of buildings have been amenitized now,\u201d he said. \u201cI think there\u2019s a whole overall look to reinvent yourself in a better building or reimagine your space in a better environment.\u201d<\/p>\n Leon mentioned conversations with \u201cquite a few\u201d tenants to restructure their current leases or extend them, something he said could be a \u201cwin-win\u201d if done right. \u201cLandlords can retain tenants and tenants get accelerated concessions,\u201d he added.<\/p>\n In the Northern New Jersey office market, NAI Hanson broker Judy Troiano has seen landlords consider shorter lease terms, particularly two- and three-year leases. \u201cI think the real challenge for (landlords) now isn\u2019t free rent or discounts, it\u2019s the short-term lease conjunctions with construction costs at an all-time high. It leaves them struggling to make the deal pencil out.\u201d<\/p>\n Judy Troiano, Broker, NAI Hanson<\/p><\/div>\n Leasing professionals had to adapt quickly during the unpredictable and unprecedented year that was 2020. Much of the conversation tended to focus on tenants in the market and owner flexibility and concessions, but tenants need to be willing to pivot as well, said Troiano. Moving forward, flexibility will be essential to how both landlords and tenants approach office leasing.<\/p>\n \u201cAt the end of the day, it\u2019s not rocket science,\u201d said Troiano. \u201cIt\u2019s a matter of bringing two people to the table and satisfying the majority of both their needs. The needs just simply have changed for tenants.\u201d<\/p>\n READ ALSO:<\/strong> Tech Tenants Remain Biggest Force in Office Leasing<\/a><\/p>\n For Leon, being an office leasing broker during the pandemic has turned out to be a rewarding experience.<\/p>\n \u201cNow a broker is more of a consultant for clients,\u201d he said. \u201cEveryone will try to speak with you and come up with a plan. We\u2019re busy, it\u2019s just a different busy than in previous cycles. You have to be a little more detailed, there\u2019s little more handholding.\u201d<\/p>\n Michael Cohen, President, Tri-State Region, Colliers International<\/p><\/div>\n Many in the industry are optimistic about the economy rebounding and taking off in the second half of 2021, following the expected widespread distribution of coronavirus vaccines and potentially more stimulus legislation. However, if that turns out to be true, some expect to see a pullback from companies deciding to keep their spaces for potential expansion, retention or any number of reasons, said CBRE\u2019s Anderson.<\/p>\n With uncertainty still the name of the game, one thing that insiders agreed on for certain is that some variation of work from home will still be in demand.<\/p>\n READ ALSO:<\/strong> Four Tips for Lowering Occupancy Costs in the Office Sector<\/a><\/p>\n \u201cIn the near term, less space will be leased and that will make it hard for landlords to push rents and hold strong negotiating positions,\u201d said Anderson.<\/p>\n What could buffer some of that pain is the potential for economic recovery next year, he added. And if the competition for space heats up, tenants looking to expand will reduce the negative effects of the work-from-home trend<\/a>.<\/p>\n \u201cIt\u2019s complicated, it\u2019s unfolding, but we know sentiment has changed,\u201d Anderson concluded.<\/p>\n
\nMarket upheaval<\/strong><\/h2>\n
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<\/a>New tenant demands<\/strong><\/h2>\n
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\nBrokers adjust<\/strong><\/h2>\n
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\nLooking ahead<\/h2>\n
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