Colliers | Columbus
FROM THE OFFICE MARKET EXPERTS
Written by: Ross Lanford, Grant Hartman and Jake Nolan
Ross Lanford, Grant Hartman and Jake Nolan are a full-service leasing and sales team at Colliers | Columbus. In the past five years, they’ve been involved with over 140 transactions valued at over $232 million, accounting for the lease and sale of over 2.7 million square feet. Their specialization in the office market provides them with expertise on tenant behavior and current trends. Keep reading to get their take on what’s happening in the Columbus office market.
Compared to last year, are you noticing a shift in where tenants are looking for space and how they are designing their spaces?
Yes – I have noticed that there seems to be a flight to quality as employers take a much closer look at their layout and how their space needs to function as a whole. Many tenants have given much more thought to creating a work environment that employees will want to work in. Some of these changes include more open, collaborative areas, including soft seating/drop in areas for employees that may be on flex schedules. Our team has had success in turning downsize conversations into space reconfiguration conversations. This typically requires a team effort with the tenant, furniture company, architect and landlord in order to be effective.
New mixed-use developments continue to lead activity in the office sector. What are other landlords doing to compete with these properties?
There is no way for existing stand-alone offices to compete with new mixed-use developments. The mixed-use development office space is demanding a 35% premium over existing product, so if a tenant is willing to pay the additional rent, there’s very little landlords of existing buildings can do to compete. The real competition is between like-kind existing product, forcing landlords to renovate/update their common areas and add amenities in order win deals in this market.
Do you think we will see a major shift to permanent remote working, or do you anticipate employers bringing employees back to the office?
I don’t think we’ll see a major shift to permanent remote working long term. However, I believe some companies will need to continue to offer the option to retain some of their employees. Companies will evaluate which branches of the business need to be in the office and which ones are able to perform at home, allowing them to restructure their footprint for physical office space. However, two things that challenge the idea of permanent remote working are recruiting new talent and training that talent. It’s extremely hard to grow a company over Zoom or transfer values that your business has been built on. In these cases, we see groups looking to improve their space through finishes and design to bring people back into the office. Over time companies will figure out what works best for their business, but I predict momentum for employees being back in the office, whether that’s a full work week or a few days per week.
From your experience, how has COVID affected different industries as it relates to tenant demand and behavior?
I am noticing that call center/customer service type users and space have been hit the hardest. These were previously tenants that would take large chunks of space that required little buildout, which was attractive to owners. With that being said, we can all agree that the cube world layout that went to the wayside during COVID was something that has been many years in the making, and COVID simply accelerated that process. Overall, I believe that productivity long term for call center/sales/customer service type employees will diminish. Third party productivity management is also very expensive and not feasible for mid-tier employers long term. Eliminating physical space for the call center aspect of a company was an easy choice for companies in the short term but I strongly believe we will see this use re-enter the market in the next 18 months.
What do you predict will be the next big trend in space design for office users?
I believe the biggest trend going forward in space design will derive from flexibility and community. These two factors will work to maximize talent retention, recruit new talent and excite employees to want to work in the office. With some companies going to a flexible work schedule, office design will be a priority when looking for new space or upgrading their current location. Instead of a focus on private offices, you’ll see companies working to maximize open space. These spaces could include work zones with modular furniture or smaller meeting areas that a team could utilize. Each area can be geared toward what your employee or team is trying to accomplish, ultimately increasing productivity while they’re in the office. This is a shift in thinking, as previously companies would look at a space in terms of number of desks or offices. This flexibility will allow companies to adapt easily to changes in the number of employees who will be in the office throughout the week. Businesses will also be more focused on amenities, whether those are present in their physical space or in the building. These community factors will promote working in the office, while offering focused productivity and socialization.
Are you noticing any trends relating to term or Tenant Improvement (TI) allowance?
Tenant improvement is a big variable right now. Construction costs are up approximately 25% year-over-year, and tenants are looking for shorter term leases. This has delayed deals from moving forward and has also forced as-is short-term extensions until the tenants are willing to commit to more term. Landlords are willing to provide more TI if a tenant is willing to commit to a long term deal, but those deals are hard to come by at this point.
For more information on current office trends, check out our 2022 Columbus Office Tenant Report!