Office landlords offer discounts to lock in leases

Companies in the country’s largest office markets are seeking to reduce physical space

National /
Apr.April 06, 2021 10:36 AM
More companies are keeping their offices, but are downsizing those spaces to allow employees to work remotely part-time. (iStock)

More companies are keeping their offices, but are downsizing those spaces to allow employees to work remotely part-time. (iStock)

 

Office landlords in New York, Chicago and San Francisco could be taking a hit in the next few years even if some companies lock in long-term leases.

More companies are keeping their offices, but are downsizing those spaces to allow employees to work remotely part-time, according to data from VTS, first reported by the Wall Street Journal.

The analysis shows that landlords are giving tenants discounts of up to 13 percent compared to rents in the first quarter of 2020. Firms are also looking at an average of about 10 percent less space than they were looking at in the first quarter of 2020.

Even as more people are getting the Covid-19 vaccine, many employees are reluctant to return to the office. The U.S. office vacancy rate rose to 11.9 percent in the first quarter, according to the report, which cited data from CoStar.

Landlords are willing to offer rent breaks to prevent vacancies from rising, but these rent discounts could lead to lower valuations of office buildings in major cities.

One positive sign for office owners: Companies are still looking to secure long-term leases.
Over 45 percent of the tenants negotiating with landlords are seeking to make commitments of at least seven years. That’s up from 34 percent in 2019, according to the report.

[WSJ] — Keith Larsen


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