As workers slowly return to the office, it’s becoming increasingly clear that the way businesses rent office space is rapidly changing. Many downtown headquarters are shrinking, being replaced by suburban hubs, while long-term leases are being restructured to work in more flexibility.
In this article, we’ll look at important things to consider before you rent an office space in 2021 and how COVID-19 has changed the business of finding the right office space.
1. Understand your office needs before you start looking
McKinsey & Company recently wrote about how landlords and tenants can reimagine office and work-life after COVID-19. There are several key questions businesses should answer before searching for rent office spaces:
How have your office needs changed post-COVID?
During the lockdown, many businesses reconstructed the way their work was being conducted. Pre-pandemic, many companies held meetings in one large conference room space. Today, companies are reimagining their processes, holding virtual meetings and offering employees the option to work from home three to four days a week (sometimes more!).
What is your organizational structure like?
Talent was becoming increasingly hard to find even before COVID-19, with many workers simply unwilling to locate to more expensive urban areas. As businesses rethink their organizational structures, employers can reclassify roles into different segments:
- Fully remote workers who are more productive at home than in the office
- Hybrid remote staff with a balanced blend between at-home and in-office time
- Hybrid remote by exception where work can completed remotely if needed
- On-site employees who are ineligible for remote work
What does your business need today vs. in the future?
Every business manager has an idea of what a typical office should look like, but few have intentionally designed their office space to support spontaneous or collaborative interactions that can’t occur remotely.
There are several questions to consider when looking at office suites for rent. How much space should be devoted to collaboration or meeting rooms? Should cubicles become mandatory to reduce health risks? Is office space closer to where on-site employees live a better choice than a centralized office?
Evaluate your budget
Office footprints, including how much space is needed and for what purpose, require companies to take a fresh look at budgets. Some companies may need an office space solution in more expensive central business districts (CBD).
Others, however, may opt for suburban campuses or secondary office markets where rates are lower and more space is available to lease an office or even consider office warehouse space for rent.
2. Narrow down the location of your new office
Enticing employees to return to the office will likely be one of the biggest challenges companies face this year and next. Amenities such as rooftop decks, windows that open, and high-quality air filtration systems may help make workers feel safer and more secure.
Business continuity and operational risk are key factors companies should consider when developing short- and long-term location strategies. According to CBRE, the most important criteria to consider at when narrowing down the location to lease an office include:
Few & bigger vs. smaller & more diverse
Each has its pros and cons when evaluating office requirements. Large consolidated offices offer greater potential for collaboration and are ideal for building a cohesive culture. For example, on Crexi’s platform, we’ve seen the average square footage of office spaces for rent increase by 44% since April, as more people seek out spacious accommodations. On the other hand, small offices make location risk easier to diversify and offer more opportunities to tap into different market labor strengths. Considering the cons, large offices increase business continuity risks and are typically located in higher-cost Tier 1 markets, while smaller offices may reduce team synergies and increase operational complexity.
Population density & public transit
Densely populated urban areas with high public transportation use rates saw high growth rates of the virus when the pandemic struck. Therefore, a hub-and-spoke strategy of locating office space in primary and secondary markets would allow businesses to tap into talent-rich areas while diversifying risk.
Too, satellite offices near employees can serve as magnets to attract workers and stimulate company culture, collaboration, and innovation.
Technology & healthcare considerations
Residential technology infrastructure, particularly with high-speed internet, will become a key criteria of office site selection as more employees may work from home indefinitely.
Both tech infrastructure and healthcare are influenced by market-specific factors such as population growth, marketplace competition, and governmental legislation and regulation. Locations with solid healthcare systems provide a better foundation for post-pandemic recovery and help companies focus on the continued health and safety of their employees
3. Consult with a local commercial office broker
When it comes to their own home, most people don’t think twice about using a real estate agent. However, often business people try to go it alone when looking for office space.
As the office leasing market becomes increasingly complex, it simply makes good business sense to hire a local commercial property realtor to help find commercial spaces for rent.
Benefits of hiring a tenant representation broker
- Knowledge of the local office market
- Tenant representation with virtual tours and showings
- Inside knowledge of off-market listings
- Able to negotiate favorable lease terms with the landlord for specific tenant needs
Future office leasing trends
- New health protocols require reduced density and a potential move away from the open space concept.
- While desk sharing or “hoteling” grew in popularity pre-COVID, workers today may refuse to share space with strangers, potentially creating a reduction in the size of the office footprint.
- Shift from CBDs (central business districts) to suburban office properties due to cheaper rents, avoidance of crowded public transit, and easier implementation of new health protocols.
4. Scrutinize every detail in your office lease
The monthly expense of renting an office can be the highest and longest fixed cost a business faces each month. That’s one of the many reasons why it’s important to understand every detail of an office lease before you sign:
Main types of office leases
- A full-service or gross lease where the tenant pays the same fixed amount each month
- Modified gross lease includes a fixed base monthly rent plus items such as utilities or janitorial service paid directly by the tenant.
- Triple net (NNN) lease includes a fixed base monthly rent plus the tenant’s share of the three Ns: property taxes, building insurance, and common area maintenance.
Tips for negotiating an office lease
- Know the market and available options for office space
- Research the building and speak with the tenants
- Know the best lease concessions for tenant improvements (TIs) and rent deferrals
- Always negotiate something in return, such as reduced personal liability or common area expense caps
- Insist on flexible terms and lease option exit strategies, including early termination of the lease without penalty and the option to sublease some of your existing office space
It’s likely that post-COVID ideas will fundamentally change the office leasing market. As the commercial real estate industry adapts, tenants and investors can reinvent themselves to accelerate business recovery and future growth in the upcoming years.