With a tremendous amount of uncertainty in the air, the office leasing market is in somewhat of a stand-still. Below are several different perspectives on the current situation:
From the brokerage perspective, leases that are being negotiated in many cases have continued to proceed, as these are future commitments that most tenants believe will remain in place beyond the timeframe of the current WFH and social distancing protocols. Practically speaking, there aren't any tours happening at the moment, so the front end of the leasing pipeline is temporarily stalled - although the demand will resurface once everyone is back out.
Landlords have short-term uncertainty and risk from their existing rent rolls, tenant credit and especially, their leasing pipeline - which is currently in a stand-still on the front end. Although recently passed government regulations are intended to be as accommodating as possible to small businesses, it’s been the opposite for landlords; temporary eviction moratoriums, WFH mandates, and the indefinite nature of when normal assembly will resume has created an unclear picture as to when commercial space will resume normal functionality. In an effort to get ahead of the fallout, some landlords have been proactive with discussions of early renewals and other solutions to mitigate exposure and lock in tenants and revenue.
Tenants (Small Businesses)
Many small businesses are fighting to stay alive through the next 60 days. While turning to the landlord for relief is a common move in tough times, unfortunately, there won’t be any free lunches. Before engaging in any sort of relief arrangement, Landlords want to get comfortable with knowing if the business has a future post-crisis. If they believe in the business, then possible arrangements include something along the lines of a lease modification providing a benefit to both parties (e.g. rent payment deferral or rent abatement in exchange for some extension of the lease term).
Needless to say, Tenants with a near-term lease expiration and good credit are in a very advantageous position right now to be negotiating a lease renewal.
Flex-Space / Coworking Providers
It’s too soon to tell where these providers will be once the dust settles. Putting aside any acute pressure from their enterprise capitalization (a whole saga in itself), these companies may face severe hiccups in revenue if they are forced to close their centers and refund clients. Additionally, a serious washout of existing customers who won’t make it through this crisis can be looming once this episode is over. As in many cases, the ones who are capitalized to withstand disruptions will survive. Already in the UK, Regus' parent company IWG has asked landlords for a Rent Freeze.