COVID-19 Office Space Cost-Saving Strategies

How to Save Money On Your Office Lease

The COVID-19 pandemic has had a huge effect on how companies use and view their office space needs. With this immediate and forced shift to remote work, many companies are asking tough questions around how this will impact their space needs in both the short and long term.

Over the past seven months, we have fielded a variety of questions from our clients and other business owners. We’ll unpack some of the issues and trends we’re seeing as well as some responses to the common questions we’re getting.

“I’m not using my office space. What can I do?”

Many companies are grappling with the idea of paying for office space they can’t use during the COVID-19 pandemic restrictions. While rent cancellation is not an option from most landlords (unless it is already in your lease), there are ways to help offset the costs of rent now while businesses are struggling.

Some of our clients are asking for rent deferment from their landlords. This involves delaying a portion of current rental costs and amortizing that rent throughout the rest of the term. The total amount of rent being paid through the length of the lease term stays the same, but the overhead costs during the pandemic are decreased to accommodate for economic stress.

“I have too much office space. How can I downsize?”

A positive outcome of COVID has been the rapid implementation of infrastructure for employees to work from home. Zoom, Slack, Basecamp – all of these tools are designed to make remote work more effective. With teams working so effectively away from the office, companies are asking, “Do I really need all of this space?”

We’re seeing a lot of companies reexamining their footprint and deciding if they can give up some extra space. This is most easily done if you have existing contraction rights within your lease or you are coming up on a lease expiration. If neither of those apply, it is still worth a conversation with your landlord on how they may be able to take back some of your company’s space if you feel you have too much. They will typically consider a downsize in exchange for some added lease term.

“Can I sublease my office space?”

Subleasing some or all of your space is also an option. This would allow a company to repurpose a portion or all of their excess space and let a different company or entity utilize it. The original lease holder of the space is still responsible for full rental payments, but if you find a subtenant, their rent payments would help offset the existing rental costs.

One challenge to this option is the influx of subleases that have been added to the market. In the Minneapolis – St. Paul market, the number of sublease availabilities has doubled since the start of 2020. With excess options on the market and a general lack of appetite for office space during the pandemic, it may make finding a subtenant more difficult.

“It seems like I have too much space now. But how much space will I need in the future?”

The pandemic will eventually end, but will remote work stay? Many predict that flexibility with remote working is likely to continue in some capacity after the pandemic.

It’s important to think about the long-term projection of how your company will use the office moving forward and if remote work means less dedicated office space. Evaluate how much of your space can be converted into flexible space like shared environments or hot desking to accommodate your employee’s desire for flexibility.

One way to manage long-term growth is building expansion flexibility into your lease. If your company is anticipating growth and additional employees, intermittent options to expand your space within your existing lease term are crucial to be able to make scalable decisions mid-lease.

Ready to start the conversation with your landlord?

Reach out to us for expert advice before approaching your building owner.

How Landlords Are Responding to COVID-Related Requests

Short-term rent deferral

As mentioned above, we have seen landlords willing to defer current rents as amortized costs later in the term to accommodate for the immediate economic stress caused by the pandemic. The rent that would be paid now is then spread out over the remaining term of the lease, putting the financial burden later in the lease when your business returns to normal.

Willingness to downsize a tenant in exchange for additional term

We’ve seen this with both large and small companies. If a business wishes to decrease their overall square footage, a landlord may entertain the idea in exchange for additional years of lease term. Similar to the rent deferment, the landlord will still get the full value of the rental income, just over a longer period of time.

More flexibility on new leases

For the businesses that are entering into a new lease or are negotiating a renewal, landlords are allowing for more flexible language in the new lease agreements or amendments. A good tenant representation broker will always try to negotiate expansion and contraction options throughout the lease term to accommodate for a business’s ebb and flow of growth. We’re seeing landlords acting more favorably in giving businesses these options in new leases.

Openness to shorter lease terms

Specifically regarding spec suites and fully furnished spaces, landlords are willing to negotiate deals for shorter terms than you might see in direct space that requires the business to design and build out the premises.

This may be due in part to the rise in co-working. Landlords are finding new ways to be competitive with fully furnished, short-term rental space in co-working locations. This fact coupled with the uncertainty of office space post-pandemic is causing landlords to be more willing to accept shorter term leases for these spaces. Additionally, landlords hope that by the time your renewal notice and lease expiration are coming up, you are settled in your space and are more likely to renew and stay in the building long-term.

What This Means for Businesses

The return to normal office life is easily at least a few months away and will likely look very different than the offices we knew in 2019 and even early 2020. That does not mean you are stuck with your office as it is.

If your business is interested in immediate relief or restructuring of your lease due to the pandemic, start a conversation with your landlord about what options might be available to you. If you want the guidance of an expert, enlist the help of a Tenant Representation broker who has experience working with landlords and familiarity with the strategies we’ve outlined above.

Ready to start the conversation with your landlord?

Reach out to us! We’ll start by getting a thorough understanding of how COVID is affecting your business, what your workplace strategy looks like long-term, and help you find an immediate solution with your landlord on how to accommodate your needs.

 Rokos Advisors is a commercial real estate advisory firm focused exclusively on helping business owners make the most of their industrial and office space.