Pandemic causes ‘fundamental changes’ to Lexington office market. What comes next?

BY Tom Martin, WEKU
October 9, 2020

The office. Remember the office? The office-place? If you’re among the many now working from home you may be wondering what will greet you when return. In an interview for Eastern Standard on 88.9 WEKU, Tom Martin gets the views of one who makes it his business to study emerging trends: Lexington commercial real estate broker, Jamie Schrader.

Martin: What have you been encountering as this pandemic has brought on so much change?

Schrader: We’re almost exactly 6 months into this cycle. People are concerned about cleaning, janitorial, sanitary. Anybody involved in medical is particularly concerned about that. That’s one of the first things we received inquiries about. Obviously, there’s an emphasis on touch-free. Anytime you don’t have to touch a handle or a door, that’s a desired thing. Some people just immediately closed their operations because they had to, starting in mid-March.

Martin: What kinds of trends – for better or worse – are taking shape?

Schrader: Well, one is in the multifamily or the apartment business. There is a huge number of 20-somethings that are now living at home. I saw a statistic recently that said approximately one half of all 20 somethings are now living at home. Now, that was a trend that was already continuing over the last 5 years due to some economic uncertainty and younger people in the workforce having trouble getting started in careers, and also student debt, but COVID-19 has really resulted in a lot of 20 somethings moving to their parent’s home. And also, there seems to some movement to the suburbs where you have a little more green space, a little more open air, a little more social distancing. So, it will be really interesting to see how our big urban centers that have been growing so rapidly are impacted by this, long-term.

Martin: What about lease delinquencies? Are you seeing any commercial clients turn to their force majeure clauses?

Schrader: Yes, landlords have been working with tenants due to force majeure. Force majeure is a term that’s often included in a lease that means “superior force” and it’s for an unplanned, unexpected event. Frequently, that clause will not include pandemics. Now, landlords want tenants to succeed and they will work with tenants when it makes sense. I think a really good example early-on was a nail salon. 100 percent of the revenue is from people coming in and having work done on their nails. They’re a sole proprietor. If they’re not open for business, they have limited ability to pay rent. Certainly, that’s different than a publicly-traded company that has a balance sheet with cash on it and has been in business a long time. So, landlords have tried to work with tenants to keep them going.

Martin: Many businesses are contemplating keeping workers home for quite a while. Are you hearing of employers using this time to rethink what their office is going to look like when employees do finally return?

Schrader: Definitely. In all aspects. What most people need to realize though is typically office space is under lease. Sometimes those leases may be for 5, 7, maybe as far as 10 years. So, the corporation or the company is obligated under the lease and it’s harder for them to take significant steps when they have that existing lease in place. But people are rethinking how their offices are going to look, how many people will be in the offices. We had experienced a shift toward the open floor plan. More density in the workplace. Setup for collaboration, which meant you had more people in less square footage. That obviously was a savings to companies when they could pack more people into a smaller workspace. They had less rent burden, but that model may be changing. And I expect to see more individual offices. And while you might have people working from home, those people that lease office space may indeed lease more space per employee than they have in the past.

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