WeWork is about to make office leases shorter

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WeWork is about to make office leases shorter

Hotel operators aren t alone in the race to create better experiences for visitors to their properties.

Office landlords also have been forced to adapt to the pandemic, including focusing on wellness, top amenities and a better overall experience for workers as part of a possible once-in-a-lifetime shift in the way office buildings serve tenants.

Potentially, the shift also means longer-term landlords could take a page from WeWorks of the world and offer tenants shorter leases.

Office leasing has been great for long-term leases. We like it as investors, lenders and owners, said Tammy Jones, co-founder and chief executive officer of Basis Investment Group, a national real estate investor and lender. But there is talk about making office leases shorter. Why does the U.S. Senate come to that point? she added, adding that while WeWork and other companies offering short-term office rentals naturally had some issues, weWork had some. I think everything is on the table. After shelving its IPO two years ago, a retooled WeWork is about to go public through an acquisition valued at $9 billion, a fraction of its $47 billion valuation in the original form.

Jones said landlords and investors need to stay on their toes, especially as companies fight for talent in the Great Resignation, as waves of workers retire early during the pandemic or look for new jobs offering better salaries, flexibility or perks.

I d like to first say that WeWork is a dirty word, said Real-estate developer Douglas Durst, chairman of the Durst Organization, during the virtual talk.

He called it a definite trend of shorter leases for smaller tenants in his buildings, because they expand so quickly. So, it s quite common for us, Durst said. One year is a little short, but two or three years are something that we see quite a bit of. The Durst Organization has helped develop some of the most iconic office building in Manhattan, including One World Trade Center and One Bryant Park.

Usa office occupancy rates still remain near 36% nationally some 19 months into the widescale work-from-home evolution, according to Kastle Systems, which provides average occupancy rates in 10 cities on a weekly basis.

While some real estate analysts think occupancy rates will dramatically improve in the first quarter of next year, a majority of Fortune 500 companies also plan to have flexibility when it comes to staff reporting to the office.

Nearly 70% of big U.S. companies are adopting a flexible working model, says Morgan Stanley.

Many office landlords prefer longer Term Tenants to create stability for the term of their mortgage debt, typically 10 years. That way, the building can be financed by lenders with the assumption that incoming rents cover an owner's expenses and mortgage payments, plus turn a profit.

Even Durst Organization, which invests with its own capital and currently has low vacancy across its office portfolio, sees how short commitments make sense for some tenants.

Rethinking the office has been top-of-mind, particularly since it remains unclear when leasing activity or valuations will stabilize as the two-year mark of the pandemic approaches.

New York City, a global financial hub, saw nearly $28.6 billion in market value in the office sector wiped due to pandemic in the fiscal year 2022, its first decline in two decades, according to a recent report by New York State Comptroller.

That compares with multifamily buildings where demand for urban housing has largely bouncing back and rents have shot back up, after last year's flight to the suburbs.

Rents are rising ominously soon according to some economists, according to some readers.