Commercial office leases were on the chopping block last year as companies grappled with the impacts of COVID. Of the companies surveyed in a new Visual Lease report, 50% received some kind of monetary relief, with the majority of assistance coming from Paycheck Protection Program loans, leveraged insurance policies and lawsuits. One in five companies used rent relief funds toward rent obligations during state-mandated business closures, and for half of companies surveyed, that relief covered one to two months’ rent. For the remaining half of respondents, it covered three to four months.
About 54% of companies received some form of rent relief directly from their landlord. For those receiving assistance, rent deferral was the most popular option (17%), with the majority of companies polled receiving deferral for two to three months. Other forms of assistance included rent reduction (13%), rent abatement (13%), early lease termination (6%), application of a security deposit toward rent (4%) and downsizing to a smaller space (15). Some companies used more than one strategy.
Most tenants receiving rent reductions did so for two to three months, with 58% of companies surveyed netting a reduction of 25% or less. About 33% received a reduction of between 26 and 50%, while the remaining 9% reported receiving a reduction of more than 51%. More than half of companies surveyed received a lease length reduction for two to three months.
Nearly 40% of companies surveyed have either reduced their office footprint or are moving in that direction, a trend underscored by the growing migration of many companies to smaller suburban locations or clusters. Interestingly, the majority of companies surveyed who have sublease tenants said that very few of those subtenants have withheld rent since the pandemic began in March 2020. Nearly two-thirds of tenants said that 10% or less of their subtenants have withheld rent.
“In 2020, we saw more shifts in the commercial real estate industry than ever before. Companies had to adjust their business strategies to accommodate employees, government mandates and the changing economy, which led to new challenges and an acceleration of trends that we were seeing pre-pandemic,” said Marc Betesh, CEO of Visual Lease. “In 2021, the impact of COVID-19 will still be a factor for many organizations. However, we are optimistic that this year, the industry will continue to find innovative ways to adapt to the new landscape.”