After Covid-19, Office Leases Largely Come With Bargain Rates

Big companies are making plans to stick with city-center office buildings, but they are cutting back on space and driving down rent prices for years to come, according to an analysis of U.S. office leasing trends prepared for The Wall Street Journal.

The Journal’s leasing information comes from the data firm VTS, which tracks tens of thousands of negotiations across the U.S. between landlords and tenants. Landlord and tenant discussions in seven of the largest office markets offer an early glimpse into the evolving workplace strategies for hundreds of companies after a year of largely remote work.

Rent proposals made during the first quarter suggest that many companies in the biggest markets—including New York, San Francisco, Chicago and Los Angeles—are embracing an emerging hybrid model: maintaining a shrunken office presence while allowing employees to work remotely at least part-time.

The terms under negotiation show landlords are offering long-term leases of four and more years at discounts up to 13% below rent rates reached in the first quarter of 2020 when factoring in concessions like periods of free rent, according to VTS. Companies are also seeking on average about 10% less space than they were looking for in the first quarter of 2020.

As Covid-19 vaccine rollouts accelerate and more workers feel that it is safe to go back to the office, more companies might look to add office space. But if the current tenor of negotiations persists, it would be setting up building owners for a challenging period.

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