The CRE Occupier Outlook: Abundant Options, Shifting Leverage
2023: Where We’re At and a Look Ahead
As we begin the new year, a halting return to office and uncertain economic forecast are defining drivers in Boston’s commercial real estate. The widespread adoption of long-term hybrid work models continues to challenge the role of the office, and a significant drop in venture funding has put real estate expenses under heightened scrutiny. We expect these factors to spark a handful of distinct shifts in Boston’s office market in 2023. The number of sublease availabilities will continue to grow as organizations reassess their real estate needs and new construction deliveries come online. This influx of inventory will likely cause office rents to drop, most notably in the Class B market, while high-end, Class A space should remain competitive as occupiers seek quality.
The Tenant Perspective
Despite the economic outlook, it’s a great time to be an office occupier looking for space. With so many options available, occupiers will have negotiating power with landlords who are increasingly eager to secure a tenant. Tenants looking for quality can weigh their options among fully built-out sublease space and customizable new construction. Built-out sublease space may present significant cost savings when considering the enduring high construction costs for tenant improvement packages in newly built offices. For those who are willing to compromise on quality, there is great opportunity for favorable terms in commodity space.
As the winds shift in tenants’ favor, it is critical to understand your advantages and how to use them. We expect occupiers to hold significant leverage by mid-year 2023, and those in search of space should be prepared to act decisively when opportunities arise. Thorough due diligence including workplace strategy, utilization projections, and labor analytics will uncover essential space implications. With business needs and priorities defined, occupiers should be willing to approach lease terms creatively to secure the best deal. Adjusting the levers that are available – lease length, flexibility, furniture, improvement dollars – can generate significant value in a nuanced and evolving office market.
This article was originally published in Banker & Tradesman.