Written by Nick Lee, SIOR, CCIM and Jeremy Brubaker
The Impact of COVID-19 on Commercial Real Estate Leases
Although changes within the real estate industry were well underway prior to COVID-19, the pandemic not only served to alter the course of the industry, but expedited it, leaving many businesses scrambling to remain afloat amid an unforeseen future in a post-pandemic world. Due to these disruptions in the market, the amount of available sublease space skyrocketed as many businesses vacated their commercial spaces, setting unprecedented rates that left many landlords struggling to fill vacancies.
However, not all hope has been lost for the market. As the Omicron variant recedes, the reopening of the economy pushes forward. Companies who previously postponed their commitment towards long-term leases are now ready to re-enter the market under specific conditions. In response, landlords have begun adapting their business strategies as their leasing management evolves to accommodate their tenants’ changing needs.
With the pandemic, tenants’ expectations have changed regarding property owners and the flexibility of their leasing terms. According to a 2022 report conducted by the Visual Lease Data Institute, nearly all landlords reported that their occupants requested some lease modifications be made in response to COVID-19. After the uncertainty and instability of the pandemic, tenants are now making a point to prioritize leasing flexibility and accommodation primarily when seeking an ideal rental agreement.
Requirements such as tenants’ ability to sublease their space and the adoption of more flexible termination terms have become hot topics within the market, while options for a shorter or more customizable leasing term have transformed into a strong negotiation point for property owners attempting to fill their vacancies.
Along with the need to evolve their leasing terms, many landlords have found it necessary to alter the sublease space itself by creating spaces that provide more up-to-date amenities and technology, or by leasing office spaces that work best with a hybrid work model. According to an article published by D Magazine, out of the 100 million square feet of DFW commercial office space that was constructed during the 1980’s, almost thirty-five percent currently sits vacant as a result of companies’ increasing need for modern and improved quality of space. However, the development of the Kay Bailey Hutchison Convention Center Dallas (KBHCCD) Master Plan is set to change the landscape of downtown Dallas, giving it the much-needed facelift to bring businesses back to life.
The commercial property market is constantly evolving, and to stay ahead of the curve, it is important for business owners and property managers alike to act swiftly on new opportunities. This means being able to provide the amenities and space that tenants are looking for, as well as having the necessary equipment on-hand. By doing so, the property becomes both desirable and accommodating, making it profitable while also adapting to changing times.
Nick Lee, SIOR, CCIM: firstname.lastname@example.org, 214-256-7121
Jeremy Brubaker: email@example.com, 214-256-7118