Long-term Leases

More Tenants Expected To Consider Long-term Leases

USA – Generally, prospective tenants of office space are currently making lease decisions with the short-term in mind, but that’s not the case for Grade A office space in certain major submarkets, reported GlobeSt on Thursday afternoon (6 January, SGT).

“The best buildings in the best submarkets are frankly garnering a better lease rate than we’ve frankly ever seen in my career ever, period,” said CBRE’s Net Lease Specialist Will Pike in a recent podcast.

“Whether you’re in New York City, Dallas, Atlanta, Seattle, again, micro markets of a market, I think it’s too early to determine the actual lease structure and just assume that all occupiers are going to use shorter term leases.”

Pike said that as office space buildouts get costlier, tenants will likely make long term capital decisions. “Are you really going to make a short-term office decision that’s quite costly? I don’t think so. I don’t see much of a difference where we were from 2019 and before.”

As office rents equalise, occupants of office buildings are also more likely to move toward long-term leases, commented ICSC Chairman and former VEREIT CEO Glenn Rufano.

“I do believe that when rents start to move, tenants will once again say, I want longer versus shorter because they don’t want to get caught with a higher rent. So, this is just supply-demand pricing. And I think once there’s equilibrium, we’ll see that the tenant market isn’t that distorted relative to term.”

Notably, major office occupants were opting for shorter leases before COVID-19 in office markets like San Francisco and New York, with the pandemic ushering in a new era of hub-and-spoke strategy as tenants reviewed their office space requirements and staffing needs.

Meanwhile CBRE’s 2021 Occupier Survey showed that 62 percent of employers in the country expect to implement a hybrid work arrangement, with staff only going into the office 2.5 days a week. A higher percentage of tenants also expect a contraction in their office space at 44 percent.

On the other hand, 27 percent expect no change in their office space requirements, while 29 percent anticipate that they would need more workspace.

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