We looked for an expert in landlord representation and found one in Kelly Glass, Principal at Avison Young. Kelly has worked in the commercial real estate industry for over 20 years and has spent most of this time representing landlords in downtown San Francisco. coDesign had a great conversation with Kelly. We spoke about the 2022 corporate real estate market and discussed how both landlords and tenants have been impacted by the changes that COVID has brought to the commercial real estate space.
COVID has left tenants seeking shorter leases and smaller, more flexible spaces, and landlords have had to adapt. They’ve agreed to shorter lease terms, provided larger TI allowances, offered free rent as a signing incentive, and even made physical changes to their available suites. “It used to be about having the best lobby. Everyone wanted the curb appeal, but it’s [about] more than that now. You need to make sure that you have the gyms in-house, showers, lockers, [and] conference centers are [also] key…” shared Kelly, who made it clear that a “flight to quality” is underway. People are looking for awesome amenities and an excellent location, and landlords are having to cater to this.
While COVID has brought significant changes to the commercial real estate market, it was interesting to learn from Kelly that two submarkets have remained largely unaffected - smaller suites and view spaces. “The smaller suites…class A, downtown, [and]...under 4,000 square feet. That inventory is pretty tight. There aren’t a lot of options,” shared Kelly. Why? Because today, more and more companies are seeking out these smaller offices and pre-COVID some building owners aggregated suites to create larger tenancies. Their hope was to occupy their buildings with a small number of tenants, something which worked for them then, but which has created a shortage of available, desirable units today.
View spaces are also in high demand and according to Kelly, tenants are willing to pay more than they were pre-pandemic to secure these spots. “If you’re looking at floor thirty or higher there are limited options and those landlords have been able to really push rent and get it with very little push-back because of the limited inventory,” shared Kelly. Our team was not surprised to hear this, as we recently spoke with Hugh Scott, Executive Managing Director at JLL, who expressed this as well. Both of these brokers shared that VCs, finance companies, and law firms are the ones competing for the city’s luxury workplaces, as they’re looking to create high-end, collaborative spaces that employees are eager to return to.
What’s the takeaway? That companies are adopting new, more flexible ways of working, and landlords will need to offer workplaces that cater to this. As Kelly said, “...the most popular trends right now are amenities and location and quality of building,” and from what we’ve observed, she couldn’t be more right!