Office Tenants Want Flexible Space. They Don't Think Landlords Can Deliver

The pandemic has significantly changed the way that people work, and undoubtedly, the workplace will have to change—but landlords are not pivoting as fast as they need to. Or, at least that is the results of a recent survey from essensys and compiled by Verdantix. The report shows that only 13% of occupiers believe that commercial real estate owners are prepared to meet new tenant needs.

Flexible workplaces are among the top demand, and Jeremy Bernard, CEO North America at essensys, says that landlords need to start offering more leasing models. “Landlords need to provide a variety of lease and term options to tenants across their portfolio,” Bernard tells GlobeSt.com. “The reality, particularly in urban core markets, is that vacancy is at historical highs. Landlords are more likely to lease space on flexible terms than in a traditional model. Some rent even on shorter flexible lease terms is better than zero rent on longer lease terms. There’s no certainty of income when you have vacant space.”

Landlords are catching on. According to the survey, 67% of landlords listed flexible leases as a way to increase revenue. In addition to flexibility, tenants want also services, amenities, tech-enabled workspaces and a network of locations. Bernard calls all of these features critical. “It’s about providing trust and confidence in the return to the office for the immediate future,” adds Bernard. “But landlords need to position their portfolio now for the long-term to continue serving their tenants’ evolving real estate needs. It’s the only way they can stay relevant and drive revenues.”

This year, most experts expect office leasing to be slow, but Bernard notes that there is a need for flexible leases, and landlords willing to meet that market demand could see improved leasing velocity. “The research points to a misalignment of sorts between landlords’ flex propositions and what tenants expect from them,” he says. “There’s an immediate need in the market among tenants for shorter lease terms and options to expand or contract their footprint. Landlords are actively trying to incorporate flex into their real estate offerings but, according to the survey, not fast enough. Landlords that adapt quickly to demand drivers for flexible space will come out on top. Those that don’t adapt will have a lot of catching up to do.”

Bernard also cautions conflating flexible space with co-working space. While he expects co-working space will see an increased in demand, he notes that this is just one area of the flexible space market. Shorter leases, spec suites and access to a portfolio-wide campus of accessible spaces are also important aspects of the market. “Occupier demand is driving towards total building activation where tenants can leverage flexible space and amenities within a building or across an entire portfolio,” he says.

Finally, digital access needs are also changing. The report found that 67% of occupiers are not fully satisfied with the data security in flexible spaces, but only 47% of landlords see higher quality technology as a driver of flexible space offerings. “Valuable tenants like Amazon would never consider occupying space without a secure private network underpinning everything,” says Bernard. “If a landlord can’t fulfill the 25-item checklist of technology and security requirements of an enterprise customer, they’ll find a workspace provider that can.”

He urges landlords to act quickly in upgrading technology to meet new market demand. “Now is the ideal time for landlords to make important technology decisions,” he says. “It’s critical to think not just about what occupiers need now, but also, what they’re going to need in five or ten years. With the right software and technology in place, landlords will not only be able to catch up but also be able to lead the way when it comes to in-building occupier experiences.”