Office Tenants Are Snatching Up Space in New Development Projects
As companies are developing new workplace strategies, new office developments give them more runway to make decisions.
The pandemic has stunted office leasing activity across the country and put a cloud of uncertainty around future office usage—but there could be some hope ahead. New construction office projects have seen healthy leasing activity, according to Brian Michel, a partner at Allen Matkins.
While new construction projects are often in demand because they offer the highest quality and latest features, the currently leasing activity could be a sign that companies are looking ahead to a future with in-office work models. “As some of the larger companies begin to finalize their return to office models and plans, some tenants may prefer a little longer of a runway before needing to design and occupy their new office space, which makes new office developments even more attractive to those tenants,” Michel tells GlobeSt.com.
Tech and entertainment companies as well as law firms are the most frequent office users to pre-lease office developments, which Michel says was also true before the pandemic. “These tenants are looking for first-class office developments, and despite the recent popularity of leasing office space in suburbs, we are also still seeing that desire to remain close to many of the same big city hubs and popular submarkets that we saw pre-pandemic,” he says.
Despite some research that shows a preference for short-term leases or more flexible workspaces, there have been no changes to these lease negotiations or terms due to the pandemic, according to Michel. Plus, there have been no discounts or increases in concessions. “Most new construction projects require a rental rate to support the new construction costs, so developers simply won’t construct projects until they get the rental rates that they planned for,” he says. “In addition to the rental rate, we have not seen much of a difference in the negotiation of the remaining lease terms under leases for new office developments.”
However, landlords are motivated to sign new tenants, especially for those under construction. Michel adds, “Given the past year, some developers may be extra motivated to pre-lease their anticipated projects before taking on the risk of building those projects.”