What A Dichotomy Between What Office Tenants May Want, And What Landlords Can Deliver

“Research by the Urban Land Institute and The Instant Group showed that almost all office occupies plan to rethink their property needs…the analysis-Bridging the occupier-landlord gap for the future of workspace-suggested office users are still pondering what activity-based workplaces, flexible working and hybrid working patterns mean. The report’s authors spoke to 285 office occupiers, landlords and third-party advisers in North America, Europe, Asia Pacific, the Middle East and South America. Their conclusion was that only 14% of occupiers believe their existing workspace portfolios align completely with their business objectives and strategies. As many as 80% of landlords and 75% of occupiers expect greater lease flexibility and agility over the next five years. The consensus among both was that the answer will involve new lease structures that allow occupiers to expand and contract their office footprint.” The problem with occupiers wanting flexibility is this flies in the face of what landlords and their financial lenders want, which is stability and predictability. This is especially critical in light of the high cost of tenant improvements, which in the suburbs can run $60-80/rsf and in downtown buildings 4$00-150/rsf or more.  These high costs to customize office space for the user require longer lease terms of 5-10 years, which is opposite the flexibility office occupiers prefer. Office building loans are often for 10 years and it can be difficult to finance a property where the tenant has the right to downsize at will.