It's now been over a year since countless companies shifted their employees to remote work. For a lot of employers, that setup has become desirable on a long-term basis. But for industries that thrive on collaborative work, remote employment is less than ideal. In fact, a number of tech companies are already making plans to return staff to office buildings in the not-so-distant future. And that could work to commercial landlords' advantage.
Tech companies continue to want office space
Though leasing activity for office buildings declined substantially in 2020, tech companies leased more office space last year than any other industry. Though tech companies' share of total leasing fell from 21% in 2019 to 17% in 2020, it remained the top industry from an office- leasing perspective nonetheless.
In fact, a lot of tech companies expanded and relocated in the course of 2020. Most of last year's tech leasing activity was centered on a few key cities -- Seattle, Manhattan, Washington, D.C. and Atlanta -- and pertained to companies in the software, business services, or e-commerce space.
Notably, Seattle claimed the top spot for leasing activity, with 14 of the 100 largest tech leases totaling 3.4 million square feet landing there. Manhattan, despite a seemingly dead market for office space, came in second.
Good news for office REITs
As remote work came to define 2020, many real estate investment trusts (REITs) with large office-building concentrations in their portfolios saw their value decline. The pain was notably evident for REITs with a large number of New York City properties.
But the fact that tech companies don't seem to be dumping office space should give investors a good reason to be hopeful. Not only do tech companies tend to operate with large budgets, but by nature they're among the most adaptable to remote work. So the fact that these companies are instead locking themselves into leases could help office buildings stage a quicker comeback than expected.
Of course, the rapid rollout of coronavirus vaccines should also help in this regard. It's not just tech companies that want to bring staff back to the office -- that sentiment is widespread in others industries, too, particularly finance. But until more of the public is vaccinated, employers may have to wait on those plans until it's safer to make that demand.
But still, the intent to get back to the office is there. And that means we could see an uptick in general leasing activity in the very near future -- not just among tech companies.
In the meantime, commercial landlords can capitalize on the fact that tech companies want square footage by offering incentives for these tenants to commit to long-term leases. They can throw in perks like furniture and other in-office amenities, from fitness centers to pool tables. And there's nothing like a few months of free rent to really inspire companies to sign leases -- a tactic that existed even before the pandemic.
Though tech companies may, to some degree, lend themselves to remote work, the data is clear -- they're still in the market for office space. That's a trend that's apt to help office REITs regain value as the world attempts to get back to normal after more than a year of upheaval.