Post-Pandemic Boom in ‘Flex Space’ Helps Bring Workers Back to the Office
As New York City has continued to re-open after the COVID pandemic, the commercial real estate industry has had to adapt to a post-pandemic market marked by changing trends in tenant needs as well as the duration of leases signed for commercial spaces.
Increased Demand for Flex Space
After working at least partially remotely since 2020, many employers realized their employees enjoy a hybrid work schedule. This has resulted in an increased demand for flex workspace. Demand for flexible office space increased approximately 21% in the second half of 2020 and has continued to increase in 2021. Many employers have decided they do not need to increase their permanent office space and can utilize flex workspace to better serve their current needs.
The increased demand has led flex workspace companies such as WeWork and Workville to partner with large commercial real estate services firms and brokers to rent their vacant spaces. This partnership has been successful for all players, as commercial brokers are able to lease space that was previously vacant, flex workspace companies are able to meet their increased demand, and employers are able to obtain customized workspace with the amenities employees need. In 2020, 20% of corporate workers used flex workspace at least one day a week compared to 14% in 2019, so these partnerships have provided more options for employees to come back to work.
A second trend in commercial real estate is a change in the terms of leases signed. Many commercial brokers and real estate services firms have become accustomed to tenants signing leases for more than five years in duration – some leases are signed for 20 to 30 years, depending on the tenant. However, one lasting side effect of the COVID-19 pandemic is hesitancy to commit to extended lease agreements, even though the real estate market is picking up again.
Many employers plan to continue offering hybrid work schedules and employees will continue to work from home in some capacity; therefore, a long-term lease with the uncertainty of how many employees will be returning full time to fill the space is not attractive to many companies. Retail tenants in particular struggle with trying to predict if they will be able to attain and maintain their pre-pandemic levels of business as NYC reopens. With these factors unknown and with ever-changing COVID-19 regulations, brokers are finding more success with leases signed at a two-to-three-year term. According to a CBRE market report, during the last nine months of 2020 approximately 54% of all lease renewals larger than 15,000 square feet were shorter than five years – which is significantly higher than the 21% of short-term deals signed pre-pandemic.
As NYC real estate continues to bounce back, specifically in the commercial sector, we can expect more trends to emerge. For example, in 2021 we have started to see longer-term leases being signed again as tenants are becoming more comfortable, which instills a greater sense of security in the industry. New York City is nothing if not resilient, and the commercial real estate market has certainly shown this over the past year and a half.
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