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O F F I C E - B A S E D O R G A N I Z A T I O N S W I L L
C O N T I N U E P U S H I N G F O R F L E X I B I L I T Y
Traditionally, most organizations have
sought long-term leases to secure their
position in desirable locations. But as
office-based organizations fine tune their
hybrid work models and hire more
distributed workforces, their need for
space can change dramatically in much
shorter periods. This has made flexible
leases with shorter terms and convenient
break options much more appealing and
popular.
In 2024, office vacancies reached a 30
year high, and the national rate increased
by 120 basis points year-over-year, with
vacancy rates in some of the top office
markets increasing by over 500 basis
points. Lessors in these markets are in no
position to demand traditional length
leases, and the data reflects that, with a
disparity between lease terms in prime
buildings and non-prime buildings..
"New leases in prime office buildings have
been for longer terms than those in non-
prime buildings," CBRE reports. "Between
2021 and 2024, the average prime lease
term was 107 months vs. 86 months in
non-prime buildings. Occupiers are
motivated to sign longer terms to secure
tenant improvement allowances in prime
spaces. Tenants in non-prime buildings
have leveraged the higher availability of
space to negotiate more flexible terms
and concessions."
The demand for flexible leases is a trend
we expect to continue for office-based
organizations, and it may increase if the
market continues to favor office tenants.
6 Predictions for Lease Accounting and Administration: Prediction #3
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5
The influence of sublease space
and the growing demand for
flexibility has led to term lengths
falling below historical averages.
-Avison Young
If new data or changes to demand for
space causes there to be substantial
underutilized space, the company can end
the lease with minimal penalties and
downsize to a more appropriate space. And
since the supply of office space now far
exceeds demand in many markets, lessees
have much greater leverage to negotiate
favorable terms.
