In-person work models are slowly but surely coming back to the cultural zeitgeist. With companies like Goldman Sachs and Apple requiring employees to return to the office, the tide is once again turning for commercial real estate.  

Still, there is incredible uncertainty about the future of CRE as professionals navigate the evolving challenges of working in a post-covid environment. However, as corporations reinstate the value of physical working spaces, the demand for office leases is once again climbing.  

 
At the same time, this evolution presents a strong opportunity for tenants to take advantage of low prices. As professionals reassess the role of commercial real estate in future production and company culture, market conditions empower those who wish to expand to save. 

1. The Pressure to Return to the Office

2. Corporate Leasing Demand Grows

3. Commercial Lease Expirations on the Rise

The Pressure to Return to the Office  

Goldman Sachs is one of the most recent household names to re-implement a five-day-a-week in-person schedule. The financial services firm has consistently proven itself to be on the cutting edge of CRE trends, so when they make decisions like this- it’s time to take notice.  

The investment banking behemoth spearheaded the corporate migration to Florida. It was in the first wave of companies to see the favorable regulatory environment and low taxes of the sunshine state as a novel opportunity to cut costs.  

Following its move to reduce its presence in NYC while laying down roots in Florida, 300 financial services firms followed. (And more are moving). So, essentially, the powerhouse’s moves are indicative of developing trends and opportunities. They do the research for you. 

Goldman Sachs isn’t alone in the movement to bring back corporate environments. Apple made news with a new plan to require its employees to return to the office a minimum of three days a week.  

Apple’s CEO Tim Cook explained the decision, 

It’s not just businesses seeing the value of in-person collaboration. Among employees, there is a shared understanding of the benefits, including mentorship, spontaneous brainstorming, and building social relationships. In fact, of those who want to return to the office (at least part-time), 52% report wishing to do so because of the socialization with coworkers.  

Corporate Leasing Demand Grows 

Demand has returned to Manhattan office space, reflected by the first uptick in rent prices for the last two years.  

Courtesy of NYC Comptroller’s Office

This confirms the renewed interest in corporate leasing that appears to be on the horizon. As people return to work, even environments like Manhattan, which complicate corporate success through high taxes and regulations, are seeing growth.  

According to GlobeST, “While cities like New York and San Francisco have lagged behind other Southern and Sun Belt markets like Dallas, Austin, Phoenix, and markets in Florida that have been faster to adopt return-to-office, they’re still improving. Manhattan leasing in August was at its highest level since December 2019. And the city’s office occupancy level is currently 35.3%, based on Kastle’s latest weekly survey.” 

So, while business-friendly areas like Florida piqued corporate interest initially, demand for real estate now appears to be growing all around.  

The New Corporate Office  

The leases coming back are smarter about their space utilization. They are written with the understanding that people want flexibility. Modern office design is evolving to reflect contemporary challenges. As such, the space utilization, floor-plan, amenities, and features of a hybrid-friendly office look different than traditional office spaces.  

Usually, this takes moving things around, renovating to account for seat count rather than employee count (which includes remote workers), oh and the money down for all these renovations, architects, and safety features- oh my!  

Good news. Since demand is still below pre-covid, you still have the upper hand as a tenant who is either looking to renew your term, find new space, or expand your footprint. Landlords are more willing to offer concessions for credible tenancy in this market. So, if you are looking to renovate your office with modern features, you can negotiate the cost to be covered by a tenant improvement allowance. Many tenants are taking advantage of this possibility.  

According to GlobeSt,

Commercial Lease Expirations on the Rise  

At the same time, while some businesses have dug their feet into the value of physical offices, many are cutting their losses. 

Corporations overpaying millions for underutilized are slashing their footprints as their leases expire. According to GlobeST, “The office sector will likely benefit from an unusually large amount of lease expirations.” 

And when you consider why, it makes sense. Commercial real estate is typically an organization’s second top cost. So, if it’s not being fully utilized, properties are hemorrhaging money. Obviously, then, cutting the bulk in CRE can bring in big savings.  

Look at Yelp, which uncovered that their offices were witnessing a 2% utilization. Ditching these spaces (450K square feet) for remote productivity is an unmissable opportunity for them to save millions.

Yelp is now the poster child of total-war Right-sizing (completely slashing their underused offices). Their sustained productivity and increased profit margins have a lot of businesses foaming at the mouth with inspiration. As such, the next wave of lease expirations is sure to be a doozy for commercial property owners.  

According to the Wall Street Journal, “Most office building owners have been able to ride out the pandemic because corporate tenants have been locked into long-term leases. They continued paying rent even when their employees stayed home. Now, as more leases expire, a growing number of tenants are shrinking their offices because they need less space under hybrid strategies that blend office with remote work, brokers say.” 

Now that “looming lease expirations represent a 40% increase since 2018,” those wanting to lease now have free reign over CRE opportunities. Take for instance demand for office space in Manhattan. In 2018, there was more competition for office availability. As such, rents were obviously higher.  

Now that we know that office leasing is growing (and taking on space is associated with less uncertainty and risk than a year or two ago). 

This is an opportunity to jump on the high availability of office space that presents itself. Since so many companies are still shying away from expanding their physical locations if you’re ready to lease, you can scoop up Class A office space for a fraction of the cost five years ago.  

The explosion of lease expirations is the perfect opportunity for a savvy tenant to save big in renovating or leasing new space, but only if you have unbiased market intelligence. 

How Tenant Reps Can Help You Capitalize on Trends  

You just heard us rambling on for the last four pages or so about how this is a once in an era opportunity to take advantage of and optimize your commercial real estate. So, we don’t blame you if you hear “once in an era,” “chance to save millions,” and “act now” and feel overwhelmed. If you don’t know where to start, you’re not alone.  

As Tenant Reps, we have seen how the sustained demand for hybrid work has placed corporate property owners in a bind. They are more likely than ever to concede to favorable terms, amenities, TI allowances, low base rent, etc. As such, the right negotiation can save you millions. So, why leave it to chance? You want your own expert team to show you the best options that meet your needs.  A team that is 100% on your side and has the experience to negotiate the best possible terms for your company. 

iOptimize Realty^® has 30+ years of experience ensuring our corporate clients get the best properties at the terms and price. Part of this is negotiating to leverage your tenancy for all it is worth. So, if you want to learn more about how you can take advantage of this uncertain time, check out this article about  How to Optimize Your CRE for the Recession.

If you’re ready to stop wasting time and jump on this opportunity to save big in CRE $$$, talk to a Tenant Rep today!