Since the beginning of 2018, real estate markets have been thriving with businesses leasing over 200 million square feet of Class-A, B and C office space across the 12 major metropolitan markets in the U.S. Class-A office deals accounted for nearly 70% of this total. Across the nation, net absorption was positive, vacancy rates were dropping, and lease rates were increasing. Business was booming for landlords and brokers in a landlord-driven market, according to Chicago based real-estate firm Vestian.
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“The landlord-driven market first ignited this issue over two years ago.”
Fast forward to today and it’s a much different story. The COVID-19 pandemic and its response completely froze business decisions on expansion, leaving today’s businesses with an estimated 30-50% more space than they need. “It wasn’t only COVID-19 that sparked this surplus,” stated Michael Silver, Chairman of Vestian. “The landlord-driven market first ignited this issue over two years ago.”
Before COVID-19, many businesses were practicing remote work, but most real estate brokers were not taking this into account when forming space solutions for their clients. “With landlords dictating terms, brokers were incentivized by the high payouts that came with appeasing landlord’s soaring asking prices and rigid lease terms,” added Silver. “Rather than thinking about real estate solutions as a whole, brokers were solely focused on leasing the physical space.”
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Brokers were poorly advising their clients to take on expensive, long-term, inflexible leases in “cool,” trendy workplaces with the promise of securing top talent and elevating their image.
“Businesses are much more than just the space they occupy, yet this has not been represented in offered solutions over the last few years,” noted Silver. “The inability of most real estate brokers to think outside the space has resulted in recommendations that have financially harmed tenants. We have seen this as a growing problem and COVID-19 has accelerated it 10-fold.”
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