Landlord Representation

Employees Speak and Occupiers, CRE Landlords Listen: It’s Time to Focus On In-Office Employee Experiences

Rachel Coulter January 10 3 min read

To say it’s an interesting time in the world of office leasing would be an understatement.

For 10-12 years, there was an increased demand for Class A office space across most markets, with the economy humming along and companies growing their footprints. Expanding tech companies only helped fuel this trend, utilizing office space as a strategic incentive designed to engage and attract the nation’s top talent. Other industries followed suit, resulting in highly amenitized, collaborative workspaces conducive to continued business growth.

Though flexible work arrangements started to make their debut long before the pandemic, there was little disruption to the commercial real estate industry (CRE), with only 5% of workdays completed at home. That all changed in March of 2020, as the pandemic’s arrival caused companies to immediately shut their office doors, transitioning workers to full-time remote employees seemingly overnight.

Understandably, the uncertainty brought about by the pandemic slowed demand for office space in 2020 and the beginning of 2021. As concern surrounding the pandemic subsided, bringing people back into the office became a top priority for many companies, creating a substantial increase in activity toward the end of 2021 and the first half of 2022. Subleases were absorbed, along with a strong demand for long-term direct leases with landlords. But plans to return to normalcy haven’t gone as expected.

Employees, feeling empowered to use this opportunity to improve their lives, began to take drastic steps–resigning from positions that no longer brought them joy or fulfillment to make moves that aligned with their desire for work-life balance. As such, companies have had to adjust—not only to attract new talent but to ensure they can retain their existing talent. And the process hasn’t been easy.

The importance of cultivating a greater sense of purpose through thoughtfully designed employee-centric office spaces

According to McKinsey, two-thirds of employees say their sense of purpose is defined by what they do for a living, meaning that employees seek more from their employers than just a paycheck. Instead, they desire authentic, tailored experiences conducive to achieving health, wellness, and long-term personal and professional goals.

Recognizing this trend, companies have taken drastic steps to improve the employee experience, from more competitive pay and benefits to additional perks, including tuition reimbursement, professional development opportunities, and flexible work options. But that isn’t all. In-office opportunities, carefully crafted to provide employees with experiences unavailable from home, are proving indispensable, creating the need for workspaces that not only support company objectives but provide ample opportunities for mentorship and professional growth.

Occupiers, tackling changes within their own suites, are asking landlords to do the same—negotiating leases that include more tenant improvement dollars along with requests to improve or create common areas, such as conference rooms, fitness centers, mother’s rooms, and outdoor lounges. Most landlords recognize these capital expenses as necessary for their buildings to stay relevant and marketable, and are justifying the demand for higher tenant improvement packages by holding the line on rental rates.

Interesting Times Ahead

Since mid-2022, sublease listings have increased, mainly from tech companies struggling to bring their employees back to the office. These subleases are a concern for landlords with direct space available and may result in heated competition as demand increases. It will be interesting to see how this impacts CRE markets, especially as companies begin to demand work schedules that contain a healthy, in-office component.

As we enter 2023, the impact of a looming recession on CRE is largely unknown. However, with both landlords and employers providing spaces that meet the needs of employees, the office will remain integral–providing companies and talent what they want for the new year: increased productivity and sustainable growth.

Rachel Coulter is the Managing Director of Agency Leasing for Stream Austin, representing properties for existing and ground-up developments. She has more than 20 years of experience with local landlords and institutional owners, with a total transaction volume exceeding 6.5 million square feet.

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