What are office tenants looking for? The requirements every commercial

Things are looking a bit challenging for commercial real estate agents right now. Until the crisis triggered by the COVID-19 pandemic resolves itself, realtors find themselves in a sensitive position: to secure tenants and renew their contracts, even if the general trend is for companies to cancel their lease and switch to the work from home model. The latest example that made headlines comes from Google, which has decided to cancel plans to lease a 202,000 square foot building office in Dublin that had enough space for 2,000 employees. Just like Google, many other companies have decided to allow some of their employees to work from home until the end of the year, which means their lease requirements have changed. Experts argue that, even once the pandemic is over, more companies will have discovered the benefits of the WFH model and won’t need as much office space as before. Does this mean that commercial realtors will be put out of business? The answer is most likely no. Although the commercial real estate sector has taken a hit, it’s retail, hospitality, and office spaces that were the most affected, and other markets continue to function as usual. As a realtor, it’s essential to understand how your operations were impacted by the pandemic and, to ensure continuity, you have to know what tenants expect from the market in these challenging times.

Industrial and alternative sectors are thriving.

If your portfolio consists entirely of retail, hospitality, and office buildings, you may be feeling a bit anxious about the future. These sectors have been hit the hardest, and even by the most optimistic estimates, things won’t return to normal earlier than next year. However, some sectors are thriving, and including these properties in your portfolio could help you remain profitable. More specifically, we’re talking about industrial, logistics, and alternative sectors, which are more important than ever.

Industrial real estate remains the strongest sector, even in a time of crisis. According to a recent survey, new industrial developments have more than doubled since April, growing from 18.5% to 43.2%. What’s more, 90% of tenants in industrial buildings paid their rent on time, so if you are looking for stability in these otherwise uncertain times, this can be a great opportunity. The industrial sector is also the least likely to be affected by issues such as decline in leasing and financing.

Powered by the rise in e-commerce, the logistics sector is also thriving. With so many physical stores closed down during lockdown, businesses had to adapt quickly and turn to e-commerce. As a result, we’re in the middle of a paradigm shift: while department stores are expected to decline by over 60% in 2020, e-commerce is on track to grow by 20%. E-commerce may take place online, but, behind the scenes, it relies heavily on warehouses and logistics facilities, which you should be aware of, as a real estate agent. Online shopping is expected to become even more common in the following months, which will only boost the demand for logistics space.

The third sector you should keep an eye on is data centres. As mentioned previously, the COVID-19 crisis has accelerated the digital transformation process, convincing even conventional businesses that the future is in the cloud. What does this mean for you as a commercial realtor? That you should consider the lucrative opportunities of data centres. Even before the pandemic, modular-built data centres were expected to grow by 20%, but now, with more businesses in need of cloud solutions, that rate is expected to grow. However, keep in mind that requirements are high in this field. Data centres have to host servers in the most secure conditions possible, so they need to be built from materials such as Titan ready mix concrete, which doesn’t burn, rust, or rot, and has optimal energy efficiency.

Office spaces aren’t dead – but the standards are getting higher.

Despite the trend towards working from home, this isn’t possible in all regions and for all companies. In most cases, businesses still need some department to work from the office, especially those in finance and law, and unless you have solid grounds to do this, you shouldn’t exclude office spaces from your portfolio completely. However, you should be aware that the requirements of office tenants are changing and, especially in the current climate, it’s important to be mindful of your client’s expectations. Apart from reasonable prices, here’s what you might expect from the market in the following period:

• The demand for turnkey buildings might go up. Tenants want to start work as soon as possible, without wasting valuable time on improvements and furnishings. Additionally, most tenants prefer paying extra for fully furnished office space rather than deal with furnishing themselves.
• Flexible leases. Considering the volatility of the economy, most tenants exercise caution and don’t feel comfortable renting a space for a very long time. Instead, they prefer contracts that can be cancelled or downsized according to their needs, even if that involves paying a penalty.
• New layout requirements. Although open spaces continue to be more popular than cellular office plans (commonly known as cubicles), even after the pandemic, most big businesses can’t allow their employees to work as closely as before. Office life is already starting to change, and you will hear your clients asking about things such as socially distanced desks or “sneeze guards” fitted between desks. They might also be looking for separate kitchens, bathrooms, and conference rooms so that the entire staff doesn’t share the same spaces.
• Distributed offices have also become increasingly popular. So, instead of one central space that everyone shares, the layout consists of a set of smaller offices that allow employees to work in small teams. Their biggest benefits are that they’re better for mental health (employees don’t feel that they’re isolated) and, in case someone does get sick, only a small group has to go into quarantine.