Here’s how COVID-19 is changing the face of commercial real estate

Workers are expected to come back in force in the coming months as COVID-19 restrictions are lifted across Arizona, and many employers are configuring exactly how to get everyone back to the office – or not. One of Arizona’s leading real estate attorneys, Jay Kramer of Fennemore craig, spoke to Chamber Business News about what to expect as well as tips for employers on how to move forward.

The first challenge will be to motivate employees to come back to the job sites, Kramer said.

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Jay kramer

“People haven’t been in the office for a while and in Phoenix, you can take a 40 minute to an hour round trip,” said Kramer, partner of Fennemore, which is headquartered in Phoenix. “If they come back to the office and just walk into a cubicle or close their office door, that might not be a reason to come back. So we need to make it more enjoyable, more a community environment that is conducive to collaboration and socialization, as well as providing quiet spaces for people to work.

Now that the Centers for Disease Control (CDC) have lifting of restrictions, Kramer predicts that employees will be back in force by the end of the year.

Kramer offered his projections for the future and some advice:

Short and long term projections

In the near term, the commercial office market will remain bumpy and Kramer advises staying flexible for now.

“I think there is going to be a first instinctive reaction: ‘How do we reduce the space? “He said.” Most businesses will be in a hybrid environment and wonder why they need as much space as they have with only 50% of their employees in the office on any given day. “

Longer term, more office space may be needed due to the need for more collaboration space, social spaces, quiet spaces, and zoomed-in conference rooms, he said.

“In fact, we might need just as much space or extra space because of all of these experiential demands that we will need to get people back to work in the office. “

Big head offices could become more obsolete

Expect large corporate headquarters to disappear in favor of closer regional satellite offices to provide more travel convenience for staff, Kramer said. Many offices will also need to be “re-imagined” to make them more attractive and attract staff a few days a week or more.

“Instead of having a big head office located downtown or 24th and Camelback, one approach might be to have two or three smaller offices around the valley, closer to where they are. find your employees so they have a place to go to be a sense of camaraderie, community and firmness, ”said Kramer. “But at the same time, limit travel and limit exposure to large numbers of people.”

It’s time to think about flexible rental options for the future

Over the past 14 months, many large businesses have been able to keep their mortgages and leases in 2020 as they have been able to reduce other expenses associated with running an office by up to 20%.

In the future, CFOs may need to consider reducing the costs of existing leases through vehicles such as subleasing. Now is a good time to start thinking about how to renegotiate leases to incorporate the flexibility needed for expansion and contraction.

“It’s very difficult to change your lease during the term of the existing lease unless you have negotiated options for contraction, expansion or early termination or something along those lines,” Kramer said. “So most of us are going to continue to have to live with our current offices. “

Overabundance of sublets right now

With everyone trying to sublet right now, it can be difficult to find tenants. Businesses may find that they have to renovate their offices to survive.

“The key issues are going to be flexibility and that means the ability to contract and expand your space, to have options to extend your term but also to have the ability to contract out your lease,” Kramer said.

Recognizing that government warrants or ordinances may limit the number of employees who can be in the office, more emphasis will be placed on force majeure provisions and leases and possibly conviction.

Tenants are currently in a “leverage” position

Right now the leverage is with tenants, which means landlords will be more likely to work with a flexible lease and other terms.

“So if you have a lease that is expiring, you can normally review your lease 18 months before the expiration date, but you might want to start looking three years in advance now and see if there is anything. thing you can do. “

The residential real estate boom will benefit the commercial market

With the real estate market on fire in the valley, expect the commercial real estate industry to benefit as well.

“With more people, you would assume that more businesses, whether small or large, will start up here or potentially move their head office or regional headquarters to the region. “

As people move to the area, more “knowledge-based” businesses and higher wages will follow.

“The next five years in the Valley will be good times for the real estate market. There will probably be some ups and downs, but I think overall the trend will be very positive. “

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