Office exodus never came; Now Tenants Want Extras | Business news from Arkansas

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Fears that companies would en masse reduce their physical footprints after seeing their employees successfully work from home have not materialized, at least not in Little Rock’s market.

That’s not to say the pandemic hasn’t impacted the office space equation. Businesses are now looking for conveniences that help them retain and recruit talent, and they are demanding more flexibility from landlords in their leases, according to executives at three major commercial property management firms.

Businesses are indeed demanding more square footage, a trend Arkansas Business first described in July 2020, and the reconfiguration of offices with modular furniture to socially distance employees.

“The pandemic has kind of accelerated the thinking of companies and decision makers to say, ‘Okay, look, employees and people who are searching [jobs] have many different options now,” said John Martin, principal and vice president of brokerage at Moses Tucker Partners. “They are now looking at things that they might not have thought of before. That means we’re now in a much more competitive environment for talent.

Some larger companies are surveying workers to gain insight into long-term office space decisions, he said.

Successful property owners continue to invest in the office space they offer, making modern upgrades, especially in common areas, and adding amenities like outdoor spaces when they can, Martin said.

“I think a lot of companies are looking for nicer properties,” said Brooke Miller, agent and partner at Kelley Commercial Partners in Little Rock. They want buildings with restaurants, gift shops and more — attractions that differentiate commuting to the office from working at home, she said. Her company manages the largest office building in Little Rock, downtown Simmons Tower.

Landlords that are flexible on rental terms, rather than rates, are a bigger selling point for companies like hers, Miller said.

Eric Varner, property manager and partner at Kelley Commercial, said COVID has “highlighted the need for tenants’ businesses to be profitable and have a fair lease.” It also emphasized the fact that landlords must be profitable in order to maintain their properties.

Martin, along with Moses Tucker, said he made dozens of lease changes in the first two months of the pandemic and most landlords have been accommodating. Both he and Miller expect landlords to remain flexible.

‘Mixed Bag’

“Demand for office space is still mixed,” Greg Joslin, a senior broker at Colliers Arkansas in Little Rock, said via email. “We are seeing many enterprise users evaluating their office needs with a keen eye on the balance between worker productivity and organizational culture and flexibility.” He said the company’s central Arkansas office market saw only one increase in the fourth quarter of 2021 compared to the third quarter of 2021 of vacancies by 1 percentage point and that vacancy rates have remained fairly constant throughout the pandemic.

Joslin said some tenants with expiring leases are beginning to downsize or not extend their rental units, but that the trend isn’t widespread. Kelley Commercial’s Miller said she’s seen a little bit of everything. “Companies have had the chance and the time to actually look at what has been efficient for them and what hasn’t been efficient… and figure out what they want going forward.”

Her firm saw little to no new activity in 2020, and several tenants did not renew leases that expired in spring 2020, she said. But the company saw more activity in 2021 and is seeing many leases renewed and extended, Miller said.

Martin said Moses Tucker experienced a slump in demand in the first two months of the pandemic. “I would say we haven’t quite gotten back to the same level of activity in terms of showing spaces and all that, but it’s pretty close,” he said. “I mean, we still have good activities going on.”

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