ITRA Global News

Good to Great Office Market Opportunities for Tenants Following Pandemic

September 09, 2021

While the Covid-19 pandemic is not over, many companies are focused on the future of their business and office space needs. Some are integrating work from home strategies and downsizing their space requirements. But other businesses are sticking with their past model and will continue to use the same amount of office space, or possibly more, as they did prior to the pandemic.

Across the world, office markets experienced negative absorption over the past 18 months. As such, office space inventories have increased, and landlords have gotten more aggressive in a variety of ways.  Some landlords have reduced rental rates, but most landlords are offering tenants more free rent and higher levels of capital contribution for tenant improvements. Landlords are also offering other concessions such as free parking spaces or free storage space. This is all very good news for tenants.

One challenge affecting everyone for office space leases is the cost of construction. While landlords are providing more capital to complete improvements, in many cases that won’t cover all the costs of design and construction. In these instances, the construction cost gap is often dealt with by having a longer lease term length of 7 to 10 years instead of just five years.

Landlords are also taking on more risk by speculatively finishing office space in their buildings and then leasing those spaces for shorter lease terms. In the market, these spaces are called “spec suites.” Since these spaces are already finished, they provide a simpler path for the tenant to sign a lease and offer more flexibility on lease term length. The tenant does need to be cautious though because these suites are often priced higher by the landlord. In some markets, the cost for a spec suite can be anywhere from 20% to 40% higher than what a tenant would pay to lease a traditional space, complete the improvements, and commit to a longer-term lease.

The good news for tenants is that there are many space options across markets for office space and a variety of ways to structure the lease transaction to meet a tenant’s needs. The ITRA Global organization represents space occupiers across markets worldwide and provides them with guidance about the office space availabilities, costs, construction, and structuring options. When your organization has a new office space need or an upcoming lease renewal to renegotiate, contact ITRA Global and you will be connected with an experienced advisor who can provide you with more detailed information about your particular market and space requirement. 

Article Submitted by Wayne Teig, Principal, ITRA Global l Minneapolis-St. Paul

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