Leverage the Market for Success: How to Prepare for Your Next Office Lease

Your tenancy doesn’t exist in a void.

From the tidal wave of CMBS loans about to hit the market to the ever-changing hybrid work model, there are innumerable factors that will play a role in the landscape of your new lease. And there’s never been a more critical time for corporate tenants to consider the influence external factors shape the eventual terms, location, and price you pay for new office space.

Because we're not just dealing with recessionary symptoms like high interest rates and inflation, work from home has fundamentally shifted the need for office space. And as a result, vacancies have reached never-before-seen levels across the country, making 2009 seem like an inconvenient blip compared to the current full-blown Office Apocalypse .

And now, this is a once-in-an-era time to make or break your commercial real estate portfolio.

Since offices have largely become liabilities due to stalled occupancy rates, high interest rates, and about a million other circumstances stacking up against them, tenants need to tread lightly.

For those planning a long-term office lease, taking advantage of low costs now can save big money in the future. Because landlords have never been hungrier for business, giving you an opportunity to swoop in and use the tenant-favored market for leverage.

Tenants (under the right guidance of True Tenant Reps?) are negotiating their optimal leases and square footage for a fraction of what they would have paid pre-pandemic. Lower rent rates also mean you can get bigger spaces, better locations, and or more amenities for a better price. So let's discuss how to leverage the market and your position to secure your optimal office lease.?

Look at Occupancy and Vacancy Rates

But there’s not uniform opportunities across the board. Some markets are more poised for success than others. And what you should be looking at to clue you in on the full dynamics of an area is the interplay between occupancy and vacancy rates.

When vacancy rates represent purely empty space, the occupancy rate measures the percentage of rented office space that is actually being utilized and occupied by workers. It is so critical in a hybrid-friendly leasing environment because, unoccupied space becomes vacant space as soon as the lease expires.

Examining how the two bounce off each other will clue you in on which markets are viable for your business and which are on the brink of a crash.

Coastal areas like San Francisco and New York City tended to take more time to return to the office and overall figures were lower.

-Propmodo

The office markets experiencing higher rates of success (in terms of occupancy and vacancy rates) are in the Mid-Atlantic and Southeast. These regions contain notable business-friendly states like Florida , Texas, and Tennessee. They have also notable experienced a quicker and more robust return-to-office than the Northern region, driving the overall higher occupancy rates.

Note the occupancy and vacancy rates for office space across the country.?

The Trend Toward Premium, Streamlined Footprints

And since they’re still emerging markets, you can get more premium spaces for a fraction of what you would pay in NYC or San Fran. In fact, the interest for commercial properties in tertiary markets is higher than ever.

Because the other trend taking place in the office market is an overwhelming preference for premium spaces. Businesses are more willing to funnel CRE dollars into these spaces because enabled by a hybrid environment, they are slashing footprints. Rather than take up spaces the size of past leases, companies are downsizing and investing in more upscale, fine-tuned properties.

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