Over the last 24 months, the office real estate market has drastically changed, and this change was likely always going to occur; however, the COVID-19 pandemic accelerated it. Stay at Home orders resulted in an employee exodus from physical corporate office space to an explosion in employees working remotely from home. 2020 was a boom for technology companies as there was a widespread adoption in the use of video conferencing and cloud-based collaboration tools.
This boom also resulted in a decrease in demand for traditional office space. Many employers still see the value of having a physical office space for collaboration and face-to-face interaction. Companies like Citigroup, Disney, and Goldman Sachs have slowly required a return to the physical office, however, in most cases that mandate comes with flexibility, e.g., return to the office two to three days a week. Experts anticipate that there will likely be a rebound in demand for office space, though not to pre-pandemic levels.
So, what is a property owner of office real estate to do during this downturn?
Reposition the property: By making improvements to the property, such as updating the common areas or adding new amenities, an owner can make the property more attractive to potential tenants.
Offer flexible lease terms: In a declining market, it may be necessary to offer more flexible lease terms, such as shorter lease lengths or more generous options to terminate a lease, to attract tenants.
Diversify the tenant base: Instead of relying on a few large tenants, an owner can diversify the tenant base by attracting smaller tenants or by offering flexible office space to businesses that are looking for a more flexible lease structure.
Be creative: Instead of trying to lease the space only as office space, landlords can consider other uses for the space such as retail, residential, or warehousing.
Finally, be patient: it’s important to remember that the market will recover over time. By being patient and holding on to the property, an owner can take advantage of the market’s recovery.
So, the days of the open-door policy are not dead. Instead, they have morphed into a combination of an actual open door and a virtual open door.