Increased Flexibility in Lease Terms Demanded by U.S. Office Tenants in 2023
A recent survey conducted by CBRE, which involved 207 companies with office locations in the United States, revealed a significant shift in the approach towards office attendance. The results indicate that 65% of companies now require in-office work to some extent, marking a substantial increase compared to the previous year. This proactive stance represents more than double the number of respondents who mandated in-office attendance last year.
Partially as a result of these proactive measures, 60% of the surveyed companies have reached a long-term steady-state in terms of office attendance. This figure demonstrates a notable rise from the 43% reported last year. Interestingly, in many cases, these new steady-state attendance levels are lower than the pre-pandemic figures. Nevertheless, 38% of companies anticipate a future increase in their attendance levels.
This shifting dynamic has prompted a growing number of companies to downsize their office spaces to align with the patterns of office attendance. Among the respondents, 53% expect their office portfolios to shrink over the next three years, while 46% anticipate no change or an expansion.
Companies now have more options at their disposal to reshape their office portfolios to cater to attendance patterns, employee preferences, and market dynamics. Approximately 58% of the companies surveyed reported renewing their leases, albeit for smaller spaces. Additionally, 49% have allowed their leases to expire, and 32% have opted to relocate to higher quality spaces. In response to the increased bargaining power of tenants, 40% of companies have revisited their existing lease terms.
"Real estate adapts to changes in human behavior, and we are witnessing this adaptation in the office market as it embraces hybrid work," stated Manish Kashyap, CBRE Global President of Advisory & Transaction Services. "This shift translates into greater flexibility in lease terms, with more companies gravitating towards high-quality office spaces, as well as an increase in repurposing obsolete buildings. Throughout this transformation, the office remains a vital element in fostering employee engagement. Our survey revealed that over three-quarters of companies prefer employees to be in the office for at least half of their working time."
Many companies express a desire for additional flexibility in their office portfolios if building owners are willing to accommodate their needs. Fifty-one percent of respondents are interested in landlords providing access to shared amenities like meeting spaces and tenant lounges. Another 39% are seeking ways to align their costs with their office attendance patterns, such as paying reduced rent until they reach a steady-state threshold of attendance. Additionally, 34% are keen on having access to fully furnished and ready-to-use office suites within their buildings for quick occupancy when additional space is required.
Another significant finding from the survey highlights the influence of commute when companies choose office buildings. The survey identified the top two building amenities preferred by companies, with three out of the top 10 amenities associated with commuting to and from the office.
The survey results also shed light on the contrasting approaches to office attendance between two major industries in the United States: technology, finance, and professional services. In many instances, finance and professional services companies exhibit a more proactive attitude towards attendance compared to their tech counterparts.
"Overall, our findings indicate that senior executives at finance companies prioritize office attendance, especially amidst economic uncertainty, more than their counterparts in the tech sector," explained Julie Whelan, CBRE Global Head of Occupier Research. "Likewise, finance and professional services companies are more inclined to encourage employees to spend the majority of their workdays in the office, whereas tech companies are more likely to embrace remote work arrangements."
