With the economic pressures and uncertainly brought on by coronavirus, corporations are looking for lease term flexibility and more agile office solutions.
Commercial leases are getting shorter.
In the US, the average office lease term fell 15% in the first five months of 2020 to seven years, according to JLL—and it's likely to fall further. To put this into perspective. In Hong Kong and the UK, an average office lease lasts three years and six years, respectively.
Office occupiers that are approaching the end of their lease are driving the trend towards shorter leases and are exercising caution to avoid making long-term decisions. According to Ben Munn, Global Flex Space Lead, JLL, "Corporations want the ability to react to a host of unknowns brought on by the coronavirus and economic pressures, so they'll continue to pursue office space options that provide them with enhanced flexibility for the foreseeable future."
Commercial tenants that are renewing leases still need more agile office solutions.
The JLL report notes that renewals as a share of leasing have jumped to 51% from 29% pre-COVID-19.
Corporations are choosing to renew or extend their leases rather than search for new space in such a fluid environment. And given the level of uncertainty, tenants seeking more agile office solutions are "generally taking the path of least resistance by extending work-from-home programs and avoiding new long-term lease commitments, "says Scott Homa, Director of US Office Research, JLL. He adds that coworking memberships, suburban outposts, and shifting to permanent work from home arrangements are also additional options.
Who will win the future?
As current trends challenge office markets, a mix of traditional and flexible office space will become increasingly more important to commercial tenants. And, the landlords that recognize that office occupiers will desire agility will be better positioned to thrive in the future.
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