Leasing Trends – Flight-to-Quality Office Space

Class-A Office Buildings Win As Tenants Seek High-Quality, Amenity-Rich Space

With two years of uncertainty behind us, businesses who haven’t already taken the time to assess their real estate needs are finally forced to address the future of their office space. While many executives are anxious to get their workers back to the office, they are finding that many workers would rather stay put at home.

Motivated by the goal of bringing unwilling workers back, executives and business owners are working hard to turn the office space into a place employees really want to be. And having or acquiring the best amenities and wellness options has become a crucial aspect of this. With these new goals in mind, we’ve seen a new trend emerge: the flight-to-quality in the office space market.

Flight-to-Quality, Newer Class A Projects - Positive Leasing Momentum in Class A Office Properties

The flight-to-quality is a trend that has emerged in office markets across the nation. Business leaders who want their employees to work from a central location are seeking office space that will attract and retain employees. With many unenthused about the idea of adding a commute back into their daily routine, employers are seeking to incentivize employees with the best amenities and experiences in the office space.

As a result, leasing activity in many of these amenity-rich Class A buildings is currently at its highest since before the pandemic. New properties with abundant amenity packages are being delivered at near full capacity. For example, the RBC Gateway building in Minneapolis opened in February with over 95% of the office space leased. Developers are continuing to move forward with new construction projects, anticipating a continued strong leasing interest.

Class B and C Properties - How Landlords Are Reacting to a Difficult Office Leasing Market

The current trend is leaving class B and C landlords in a difficult position, forcing them to reevaluate their leasing strategy. Some are turning to upgrades while many are offering short-term spec suites and generous concession packages. Although it may seem natural for these struggling landlords to consider lowering rental rates to stay competitive, these building owners have not let their rates fall.

Landlords are, however, able to provide flexibility for tenants in spec suites or shorter-length lease terms. With many still unsure of the future, businesses are also seeking both expansion and contraction options in their leases. These would give them the flexibility to allow for company growth or a decrease in an office footprint if the universe throws another curveball at their business. Additionally, tenants are seeking shorter lease terms across the board with the option to potentially terminate early. Executives want to give themselves the ability to shed office space in the future if its location becomes undesirable.

The Future of the Office Market

With many leasing obstacles in front of tenants and landlords alike, the future of the office market will rely on users and building owners adapting to meet the needs of the current market. Many employees have flourished in the remote work world, but employers are seeking better collaboration and improved culture. Office space will likely once again become desirable although with more flexibility that supports remote work.

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Looking for help navigating your next office lease? At no cost, reach out to a Rokos broker today! We are here for you and happy to help.

Rokos Advisors is an award-winning Minneapolis – St. Paul-based commercial real estate/tenant representation firm specializing in helping businesses find the perfect office or industrial space for their company.

*Article authored by Rokos Co-Founder, Chris Rohrer