As the coronavirus pandemic turned from a concern to a global threat earlier this year, it was clear that the commercial real estate industry would undergo changes. Companies suddenly entered a forced work-from-home experiment, and both tenants and landlords were uncertain about their future leasing needs. A CommercialCafe survey in May revealed that tenants were optimistic about the future of the CRE market and online interest in office leases was seeing a trend upward. An update in June underlined the same direction — commercial real estate did not fully rebound, but the trend is one of recovery.
A lot has changed in the months since the last update. To see if the upward trend continued into Q3 2020, CommercialCafe analyzed online interest for commercial real estate leases. The results were supplemented by a 1,882-respondent survey asking tenants to evaluate their current office space needs. The results show online searches continuing to rise and few tenants saying they are looking to downsize, potentially indicating a gradual recovery in the office leasing sector.
Online Interest for Office Leases Comparable to Pre-Pandemic Levels
One of the ways in which interest in office leases can be gauged is by the number of online searches for commercial real estate and other related keywords. The graphs above track the evolution in interest for three CRE keywords: “commercial real estate,” “commercial property” and “office space for rent” over the last 12 months.
After starting off strong in the first two months of 2020, searches for these keywords predictably dropped as the U.S. gradually entered lockdown. As tenants were uncertain of their future office space needs, online interest for leasing offices dropped to levels lower than those during last year’s Thanksgiving and Christmas holidays.
However, an upward trend in searches for all keywords can be observed around April. Google searches for “commercial real estate” and “commercial property” reached levels close to the spikes at the start of the year in early July. Moreover, online interest for “office space for rent” in July, August and September even surpassed the number of searches recorded before the pandemic.
All this data points towards an increase in tenant interest to lease office spaces. This steady uptick in confidence is confirmed by traffic numbers recorded by online real estate listing services such as CommercialCafe, which recorded consistent growth in the number of visitors between May and September.
Office Tenants Survey: 40% of Respondents Ready to Lease, Amenity Preferences Mostly Unchanged Compared to Pre-Pandemic
The overall trends that can be observed in online activity indicate tenants that are looking to lease, however, the situations tenants find themselves in can vary greatly. To better analyze where the interest in commercial real estate is coming from, visitors to CommercialCafe and sister site PropertyShark were asked a set of five questions regarding their lease situation and office space needs.
The first question underlined that as many as 40% of respondents are actively looking for an office space to lease, while slightly more — 47% — are simply browsing. Although people browsing a listings site are more likely to be looking for an office space, the fact that a significant portion of respondents trust the market enough to actively seek a lease can be grounds for optimism.
Secondly, we asked respondents about what has prompted their office search. Once again, the responses leave room for optimism: almost one quarter of respondents are actually upsizing their office space as their company is growing, and another quarter is simply looking to relocate. Only 12% of respondents are looking for a new lease because they are downsizing, although a further 23% are looking for a more advantageous lease agreement.
Respondents were also queried about the characteristics of the office space they are looking for, with the option of choosing up to three responses. A majority of respondents — 71% and 70%, respectively — had location and rental rate among their top three priorities. This means that preferences for office space characteristics did not change radically compared to those before the pandemic.
Safety and security were next, with 25% of respondents. The inclusion of rent deferral clauses in lease agreements was the least-chosen option, with tenants evaluating their importance lower than that of building standards and certifications.
A similar trend can be observed when it comes to preferred amenities, where respondents could choose between any number of responses. Parking space and natural light are the two most important factors for tenants looking to lease. Other amenities related to health and safety measures — such as improved HVAC, multiple entrances and room for social distancing — are further down the list, signaling that tenants are ready to take precautions for COVID-19, but the most popular amenities are mostly unchanged.
Taken together, the steady growth in online searches for commercial leases and the fact that many tenants express confidence in the market reveal reasons for optimism regarding the steady recovery of CRE. For more information, you can read the complete study on CommercialCafe.
Methodology
The data presented in the survey was collected between July 27, 2020, and Oct. 1, 2020, on CommercialCafe and PropertyShark, with a total of 1,882 respondents from the U.S. Responses were voluntary, and respondents could stop at any point in the survey.
Google Trends data was collected between Oct. 19, 2019, and Oct. 20, 2020.
Content and strategies shared on NAIOP blog posts are intended to provide information and insights to industry practitioners and do not constitute advice or recommendations. NAIOP and its blog authors disclaim any liability for actions taken as a result of these blog posts.
