U.S. Office Tenants Want More Flexibility in Lease Terms in 2023

U.S. Office Tenants Want More Flexibility in Lease Terms in 2023

Commercial News » New York City Edition | By Michael Gerrity | May 18, 2023 9:45 AM ET

According to a new survey by CBRE of 207 companies with U.S. office locations, companies are more proactive about office attendance than last year: 65% say they're requiring in-office work at least some of the time. This is more than double the respondents that required in-office attendance last year.

Partly due to those proactive efforts, office attendance levels at 60% of surveyed companies have reached a long-term steady-state, up from 43% last year. In many cases, those new steady-state attendance levels are lower than before the pandemic. Still, 38% of companies anticipate their attendance levels to increase in the future.

This dynamic has prompted more companies to shrink their office footprint to match office attendance patterns. Fifty-three percent of companies expect their office portfolios to get smaller over the next three years compared to 46% that anticipate either no change or expansion.

Companies increasingly have multiple options to reshape their office portfolios to accommodate attendance patterns, employee preferences and market dynamics. Fifty-eight percent report renewing their leases, even if for less space. Forty-nine percent have allowed leases to expire, and 32% are relocating to better quality space. Forty percent report revisiting their existing lease terms now that occupiers have more negotiating leverage.

"Real estate evolves to accommodate changes in human behavior, and we're seeing that as the office market adapts to hybrid work," said Manish Kashyap, CBRE Global President of Advisory & Transaction Services. "This means greater flexibility in lease terms, more occupiers gravitating to higher quality office space, and an increase in adaptive reuse of obsolete buildings. Through it all, the office remains a cornerstone of employee engagement - our survey found that more than three quarters of companies want employees in the office at least half the time."

Many companies say they would seek additional options for flexibility in their office portfolios if building owners are willing. Fifty-one percent are interested in landlords providing access to shared amenities like meeting space and tenant lounges. Another 39% are interested in finding ways to better match their costs to their office attendance patterns, such as paying less rent until they reach a steady-state threshold of attendance. And 34% are interested in having access in their building to built-out and furnished office suites that can be quickly occupied when they need more space.

Another survey finding: The commute is a leading influence on which buildings companies select for their offices. The top two building amenities favored by companies - and three of the top 10 - are associated with getting to and from the office.

Survey results outlined a difference in approach to office attendance by two of the largest U.S. industries: technology, finance and professional services. In many cases, finance and professional services companies are taking a more proactive approach to attendance than are tech companies.

"Overall, we found that top executives at finance companies are more focused on office attendance, especially amid economic uncertainty, than are their counterparts at tech companies," said Julie Whelan, CBRE Global Head of Occupier Research. "Similarly, finance and professional services companies are more likely to encourage employees to spend most of their work days at the office, while tech companies are more likely to allow mostly remote work."

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