Despite major changes to work life since the onset of the pandemic, most companies still need office space.
What do business owners need to know before scouting out a new office lease? For starters, you probably don't need as much space as you once did. Maybe it will now be configured around meeting and gathering spaces instead of individual desks.
Even though the world has changed, landlords are not cutting lease rates. But you may be able to get concessions, such as several months of free rent. If you're unsure of what move to make, you can cut very short-term renewal deals with your landlord to stay put.
"If you're going to start cold today and look for office space, the first question you should really think hard about is what do you want to physically happen in the space," said Jim Vos, a principal with the Minneapolis office of Cresa, a Washington D.C.-based tenant representation firm.
He suggested considering how the space will contribute to the business plan. "Is it meetings? Is it work? Do you need customers to come in?" he said. "Is it a branding tool? Is it a recruiting tool? Is it a sales tool? Is it a collaboration tool?"
The office market remains something of a moving target amid ongoing waves of COVID, new hybrid work models and companies rethinking what they need from office space.
Vos noted that a client that occupies 32,000 square feet is looking to cut more than 50% of that space.
"They're going to retain their meeting space, retain their break space and just eliminate a bunch of cubes," he said. "What we expect of our office space is so different right now."
Landlords are being forced to adapt to shifting expectations, prompting some to sign renewals for tenants with terms as short as one or two years, said Reed Christianson, principal with the Minneapolis office of Houston-based Transwestern, a commercial real estate company. Before the pandemic, deals like that were unheard of; a minimum lease term was typically at least five years. Shorter-term leases could motivate some tenants to stay and buy time to make longer-term range real estate decisions.
But don't expect building owners to slash price per-square-foot rates for leasing space.
"Landlords are not reducing the rent, they're just doing more concessions," Christianson said. Those deals could potentially include several months of free rent as part of the lease.
Another potentially appealing option is sublease space, where a larger tenant will sublet space that they are leasing but not occupying. A report from the local office of Toronto-based Colliers International found that available sublease space in downtown Minneapolis leapt from 786,000 square feet at the end of 2021 to 1.7 million square feet at the end of the first quarter.
Sublease space typically offers cheaper rent and shorter lease terms.
"Generally you can get them well below whatever the market rates are. Many of them are also what I would call plug-and-play," said Mike Gelfman, executive vice president with Colliers, noting that many sublessors offer furnished space as an added incentive.
The current market gives prospective tenants some negotiating advantages.
"In my RFP [request for proposals] I would absolutely expect to get flexibility," said Paul Donovan, executive director with the local office of Chicago-based Cushman & Wakefield. Donovan said that could include "flexibility to grow and adjust the space that you need."
Donovan said that companies shopping for space should get at least three competing proposals from different landlords.
Some buildings offer a good package of amenities including conference centers, food service, fitness facilities and bike lockers. While those perksmight lure staffers back to the office, they are going to cost a little extra.
"Those buildings are able to charge a little more," Vos said. "Those are the buildings that everybody wants."
Another option for some companies is to look for space that building owners have built out speculatively to attract tenants. The smaller spaces can range from 2,000 square feet to 5,000 square feet.
Job search engine Getwork had been part of Minneapolis-based LinkUp, a job market data information company, working out of the Kickernick Building in downtown Minneapolis' warehouse district. Getwork was spun off and sold to U.K.-based Adzuna in June.
One of the first challenges for Getwork after the deal was determining what it needed for office space.
"We were kind of in this position like 'What do we do? Do we go hybrid? Do we not go hybrid?'" Getwork President Brad Squibb said.
For Getwork, the answer turned out to be a spec suite in the Lumber Exchange Building.
Getwork leased a fully furnished space of slightly less than 2,500 square feet, signing a two-year lease. It includes one conference room and two offices or so-called huddle rooms in what is otherwise a wide open space. It moves into its new location Aug. 1.
"I think for us it was really about getting people back to the office to reengage with each other. We've been remote since COVID hit," Squibb said.
