By any measure, the office building industry is facing a great deal of stress.  The economic impact of the pandemic on tenants is compounded by the limitation or outright prohibition on even showing up at the office.  You would think rent rates would be dropping like a rock but, surprisingly, they are not.  Why is this?

 

Unlike normal cyclical recessions, everyone – the landlord and the tenant alike – is expecting things to return pretty much to the way they were once enough people get vaccinated for COVID-19 and the pandemic subsides.  Landlords in particular view this disruption as a temporary setback.  Dropping rent rates are like an avalanche: after a few key landlord’s drop their rates, the rest follow.  And so far, the big ones have not. 

 

That is not to say that they aren’t wheeling and dealing.  As an experienced tenant rep broker, I believe the opportunity lies in the front end of the lease.  Right now, new tenant leasing is way down.  If landlords let a deal get away, they don’t know when the next one will come along.  A good broker will get creative with the first year of the lease term if the tenant is willing to commit to three or more years.  My strategy is to play on the landlord’s fears.  If space is going to sit vacant for six months, shouldn't they be willing to agree to half rent for a year to get the deal done?   

 

Yes, these are uncertain times and the future of office space is being debated everywhere.  If you are in a position to totally rethink how your business operates and where your employees work, this is the conversation we would be having.  But for those who look forward to returning to the office, let’s get those upfront concessions!