At 70%, renewals dominate office leasing in the US in 2020, a significant uptick from 2019 levels. A JLL report released this week reveals that most companies are adopting a wait-and-see approach to lease strategies as COVID-19 continues to throw a wrench into planning. Generally, office users have favored smaller footprints over the last year, supporting the idea that demand would shrink in response to WFH and remote work policies.
Pre-pandemic renewals made up around 29% of total office leasing activity. About 43% of renewals in the Q4 were five years or shorter in duration, and weighted-average lease terms are also slipping.
“There’s a short-term nature to many leases, with an increase in renegotiations for more favorable terms in the interim,” explains Phil Ryan, US office research director for JLL. The gap between where US office rent levels are and where they end up after discounts and other incentives has widened in New York, for instance, to 28 percent in the third quarter of 2020 from 6 percent in 2008, according to JLL.
Companies are also taking less space whether the lease is a renewal or a new one.
The 100 largest office leases last year totaled 29 million square feet, a 32% decrease year-over-year, according to CBRE research. Renewals accounted for 43% of those top transactions. Tech drove leasing in 2020, but all industries saw a drop in leasing activity with the exception of business services (which experienced a 7% increase in average lease size).
Whitley Collins, Global President of CBRE Advisory & Transaction Services, anticipates that activity likely will perk up in 2021 as the vaccines roll out and the economy improves, but in the meantime “companies will map out their long-term office strategies with new emphasis on determining the most efficient use of workspace with more employees working flexibly from multiple locations.”