Although business owners and managers are beginning to make firmer decisions about their companies’ real estate needs, most are still prioritizing flexibility in their lease terms.
That’s according to a recent survey by commercial lease-management software company Visual Lease, in which 61% of real estate executives surveyed said flexibility was very important given the current market and commercial real estate trends.
Bill Harter, principal solutions advisor at Visual Lease, said companies in the market for space today primarily want expansion and contraction options in their leases.
“Ultimately, it’s the ability to make modifications to the leases at some future points in time, based on market conditions, rather than taking a long-term commitment,” Harter said.
A lease of up to 10 years has historically been a common-term length for office deals, but tenants today want something with a shorter term and the option to extend a lease for, say, another three years after that shorter term expires.
That’s because it’s still tough for many companies to determine exactly how much office space they need, even four years after the onset of the Covid-19 pandemic, which upended office-use norms in most industries.
Landlords are still generally willing to negotiate with tenants on term flexibility, Harter said. In the past four years, tenants have had more leverage as office owners have seen companies downsize or exit buildings entirely, and leasing demand has thinned as companies have delayed making decisions.
Although office-leasing activity has been picking back up, flexibility remains paramount for occupiers, Harter said. Companies overall want to be able to reevaluate their lease portfolio more frequently than they’ve been able to in the past.
“That said, landlords are trying to put that line in the sand,” Harter added. “They want to have some sort of commitment, but this is a typical give-and-take of market-based negotiations.”
Beyond flexible leases, tenants today also want more visibility into things like a building’s operating costs and a landlord’s financials.
Visual Lease’s survey found that 56% of real estate executives surveyed said they plan to add space in 2025, while 36% expect to remove space in their strategies next year.
Notably, 55% of the executives said it was extremely or very likely their companies will defer necessary upgrades or relocations in the coming year because of economic uncertainty. That’s down from 71% who said the same last year, though it remains a significant share.
Harter said the return-to-work movement is still uncertain for a number of companies, making it tough to move forward on what can be an expensive real estate decision. Other companies are waiting to see the outcomes of this week’s elections before making firm business decisions, including on their real estate.
Source: “Flexibility remains paramount in office-leasing decisions”
