COVID-19 is creating an unprecedented opportunity for commercial real estate savings, are you in a position to leverage them?
Since the end of March, offices have been mostly vacant as tenants adopt a remote work structure in response to the novel coronavirus and COVID-19. As a result, many organizations are realizing that while their need for office space has changed, they will still need to maintain sufficient office space for those returning employees who need or prefer to work in a physical space outside of the home. However, based on the discussions that Real Strategy Advisors is having with our clients, the overall theme is that tenants are pondering their total requirement for office space and for the most part, putting growth and expansion plans on hold. More than a few tenants expect to reduce their space significantly.
So with businesses taking less space, possibly even giving some square footage back, vacancies and availability are expected to increase sharply. Coupled with lower tenant demand, Real Strategy Advisors is expecting office space to begin going on sale — savings are afoot!
While no one could have anticipated what has occurred in these last few months, the impact has been universal. Though the zombie apocalypse may not have occurred, the challenges and uncertainty that have been created in the minds of the commercial real estate landlords can’t be ignored. With those truths acknowledged, this creates an unprecedented opportunity to negotiate or renegotiate favourable lease terms.
The negotiating environment in which we find ourselves will inexorably improve from a tenant’s perspective. While the impact of COVID-19 on the commercial real estate market has yet to be fully realized, and the understanding of how fast and how far market rents will drop is still foggy, experience from advising tenants during past recessions tells us that the fall will be steep and last a long period of time. The potential for local governments to introduce austerity budgets is real and could hasten the decline. Landlords will also have to be more aggressive so as to not be stuck sitting on vacant space.
With this heightened office space supply and lowered demand, current and prospective tenants should take care to maximize the value created by this market opportunity. If you have a lease negotiation coming up or find yourself paying too much rent (which is everybody), don’t miss this opportunity to revisit how your organization utilizes commercial real estate. Maybe it’s a longer-term lease, better rental rate, or a more efficient layout, anything is possible. If you never ask, you’ll never know.
Call us to discuss how best to position yourself for a commercial real estate negotiation during COVID-19. We are happy to perform a complimentary lease review and chat about a preliminary strategy. Our Real Strategy Advisors brokerage team is standing by to talk about your potential for savings.