BY BARRY HARDWICK, CCIM
Being a veteran in commercial real estate, I would love to be able to say that I have seen it all in this business. That would not be the case here. But what I have seen is the resilience, creativity and patience with which we continue to get business done. I am fascinated by the ways in which people and businesses are adapting to this current world we are living in. New cleaning measures, reconfiguration of spaces and the delay of reopening business, and a re-emergence of medical office appetite are forefront in the market today. What I see every day is businesses finding ways to be successful.
As the Coronavirus pandemic continues, a majority of office workers are still working from home with no deadline to return to the office. Companies are reviewing their current floor plans and determining if they need to reduce the amount of square feet they rent and / or how they can reconfigure their current space to ensure employees can safely return to the office. Because of this, there is a significant amount of subleasing space on the market. Companies are finding they no longer need as much office space, thus leaving a major hole in the leasing market. It has become a tenant’s market and may remain so through the foreseeable future. It will be interesting to see how the market looks in 2021, as another three million+ square feet of speculative new office property comes on the market. We are seeing leasing incentives come to market that have not been here in a longtime and we expect they will be more prevalent in the new year.
The changes to the work team environment have also changed the interactions of the teams within a company – or have inevitably resulted in a lack of interaction. Work may be getting done, but what lasting effects this new structure will have on the business environment are yet to be seen. The overarching question is how synergy can be created through online-only interactions. In the first six months of the pandemic, established teams continued to work together who had already developed relationships, trust, and company culture. But as employers experience turnover, the task of creating and sustaining culture in a virtual office is extremely challenging. This absolutely affects the future of the office market, as companies will need their employees to collaborate in person once again.
Cleaning protocols for spaces play a factor in this current environment. Whether you are visiting a space to tour or representing the landlord, there are safety expectations that need to be taken into consideration. Of primary importance is cleanliness of the space; it has to be cleaned differently, at higher costs, which must be absorbed by the landlord, passed along to the tenants, or implemented by the tenants entirely. Operational budget line item expenses and projections must be adjusted as a result.
One example I can share happened a couple of months ago. I was representing a tenant in search of an 8,000 square foot office space, and we’d identified a building where the current tenant of the space wanted to vacate early. We scheduled my client’s site visit but received a last-minute notification that the appointment was cancelled. An employee of the current tenant had tested positive for coronavirus, triggering the protocol for deep cleaning the space. That single instance of deep cleaning cost the current tenant $3,500. The protocols have been developed and are in place – and the associated costs are significant to maintain office safety.
Medical practices have implemented considerable changes during these past months, often faster than many other commercial spaces. Many practices that were planning to relocate or change size in the spring put their plans on hold and are just now starting to re-look at the market. A dentist that I represent called me recently, after several months of hesitation, to begin discussions once again. A physician that I represent wanted to relocate back in March but put his plans on hold until the summer. This behavior is a result of overall national uncertainty and disruption due to COVID-19, but does not represent a sizeable shift in strategy.
Representing clients means that you need to understand how the pandemic has changed the market and what your clients are now looking for. There are regional differences for medical clients. Suburban physicians and dentists have been looking to own their own space while urban and regional practices that are normally bigger are looking to rent.
The leveling of these trends has yet to be seen and we do not know what the next trend will be. However, we do know that the market will adjust and people will find creative ways to accommodate the changes they need to make in order to make their businesses successful.
Leave your name and email below along with what you are looking for in the message box. Or you can call us at 615.234.4900.
© 2020 Centennial Retail. Trademarks and brands are the property of their respective owners.